Neutral Citation Number: [2011] EWCA Civ 41
Case No: B4/2010/0623
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
FAMILY DIVISION, PRINCIPAL REGISTRY
MR JUSTICE CHARLES
LOWER COURT NO: FD07D00036
Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 28/01/2011
Before:

SIR NICHOLAS WALL, PRESIDENT OF THE FAMILY DIVISION
LADY JUSTICE ARDEN
and
LORD JUSTICE WILSON
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Between:

	VICTORIA THERESA JONES	Appellant	
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	GARETH TELFER JONES	Respondent	

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Mr Martin Pointer QC and Mr Geoffrey Kingscote (instructed by Mishcon de Reya) appeared for the Appellant.
Miss Lucy Stone QC and Mr Marcus Lazarides (instructed by Levison Meltzer Pigott) appeared for the Respondent.

Hearing date: 3 November 2010
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Judgment

Lord Justice Wilson: 
1.	The wife (as it will be convenient to call her notwithstanding the grant of a decree absolute of divorce) appeals against an order for ancillary relief made in her favour against the husband (as it will be convenient to call him) by Mr Justice Charles in the High Court, Family Division, on 23 February 2010. In order to make my judgment as digestible as possible I propose to round all the judge’s figures up or down. The judge awarded to the wife a lump sum of £5.4m on a clean break basis. Of that sum £0.4m was designed as a further and final payment by the husband in respect of the wife’s costs of her application: for they amounted to £0.8m, in respect of which he had already reimbursed her to the extent only of £0.4m. The husband’s own costs amounted to £0.9m. In combination the parties’ costs of the proceedings were therefore £1.7m. The substantive hearing proceeded for ten days in June and July 2009 and followed a hearing, before the judge in March 2009 which, although expected on both sides to be the substantive hearing, had under his guidance become a protracted debate over three days about further disclosure.
2.	Exclusive of the provision in respect of costs, the judge’s award to the wife was therefore in the sum of £5m. Her contention on this appeal is that, exclusive of, or if not inclusive of, the provision in respect of costs, it should have been in the sum of £10m.
3.	The judge released his judgment for publication but on an anonymised basis, i.e. as J v. J. Its citation number is [2010] EWHC 2654. It has 484 paragraphs. An article on the judgment, by Mr Ashley Murray of counsel, has recently been published in [2010] Family Law, Vol 40, at 1111. Mr Murray introduced his article as follows:
“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.
4.	The appeal raises a point which I formulate as follows:
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?
5.	The husband is aged 58 and the wife is aged 44. They were married in June 1996. There was no child of the marriage but, by an earlier marriage, the wife had a child who was treated as a child of the family. The parties separated in January 2006.
6.	The wife had wealthy and indulgent parents who made substantial provision for her prior to the marriage. Following her father’s death in 1994 and her marriage to the husband, her mother continued to make substantial provision for her and the judge found that in the future she was likely to continue to fund the wife’s lifestyle. He also found that neither the wife nor her mother had been frank about the financial dealings between them.
7.	At the date of the marriage the husband was the sole owner of a company which supplied specialist gases and associated equipment to the oil industry in the North Sea and which later changed its name to Dominion Technology Gases Ltd (“the company”). The husband, together with an investor who by the date of the marriage had dropped out, had acquired the company in 1988. But the husband had started the business, unincorporated, in 1986 and had run it through another company from 1987 to 1988. It follows that the business had been in operation for ten years before the marriage took place; and in what follows I propose, albeit inaccurately, to refer to the company as having operated for that period. 
8.	On 25 May 2007, when the proceedings for ancillary relief were under way, the husband sold the company for £32m. Following deductions in respect of expenses of sale, of £3m due to a co-director and of CGT, the proceeds of sale in his hands were £25m. By January 2007 he was in active negotiations for sale of the company and knew that he was on the point of achieving a price of at least £20m for it. But in his affidavit in Form E sworn in that month and in his answers to questionnaire given in March 2007 he dishonestly suppressed the existence of the negotiations and, in the affidavit, contended that the value of the company was £3m.
9.	I will take the judge to have found the net assets of the parties at the date of the hearing to amount to £25m, which is therefore identical to the net sum which the husband had received for the company two years earlier. The judge set out the assets in tabular form at [267] and again, in what he intended to be only a re-arrangement referable to costs, at [277]. If in those tables he had included full totals as well as sub-totals, he would have discovered a discrepancy in the totals of the two tables amounting to £400,000 which, in that in any event I am rounding all his figures, I can ignore. In reaching his figure of £25m for the total assets the judge correctly made allowance for all the costs on both sides, including those not yet paid by each of them to their solicitors; and it may broadly be said to have been the burden of £1.7m in costs which reduced the parties’ net assets to a sum equal to the net proceeds of the company. 
10.	In his table of assets the judge included a castle near Aberdeen owned and occupied by the husband and a house in Gerrards Cross owned and occupied by the wife. The wife had bought her home in Gerrards Cross during the marriage with funds which the judge found to have been provided to her at various stages by her mother, and during his lifetime by her father, in the form of interest-free loans. In the light of his finding the judge included in his table the total of the loans as a liability of the wife and, in that they equated to the current value of the home, namely £2.1m, he thereby in effect eliminated its value from his net calculations. In that the judge also found that the loans were so soft that, even were the wife to sell the home, her mother would during her life not demand their repayment and that she would by her will provide for their release, the judge was in my view generous to the wife in including them as a liability. Mr Pointer QC on behalf of the wife observes, however, that, even were the loans to have been ignored and the value of her home not thus to have been written off, it is most unlikely, in view of the origin of its funding, that the sharing principle would have operated to the husband’s advantage in respect of it; and indeed the judge seems so to have recognised at [445].
11.	The wife’s claim, as presented to the judge as also to us, was for a lump sum payment by the husband of £10m. Mr Pointer contended that such reflected a proper application of the sharing principle. He conceded that the husband’s ownership of the company at the date of the marriage justified departure from equality within the principle and argued that the proper extent of the departure would be reflected in an award to the wife of only 40% of the parties’ net assets of £25m, which, as I have pointed out, represented no more and no less than the net proceeds of sale of the company received by the husband.
12.	Before the judge the husband’s offer by way of response to the wife’s claim differed, at any rate in emphasis, between opening and closing. At the start of the hearing on 16 March 2009, through Miss Stone QC, the husband offered to the wife a lump sum to be calculated first by taking the value of the company at the date of separation, i.e. January 2006, then by deducting its value at the date of the marriage, i.e. June 1996, and then by dividing the balance equally. The husband’s evidence about the value of the company at these two dates seems to have changed during the hearing; and in effect the two figures became agreed. In the light of extraordinary buoyancy in the industry between January 2006 and May 2007 and of the particular position of the company in being able to profit by it, it was agreed that the value of the company at the date of separation was vastly less than the price achieved on the later date, namely only £12m net. It was also agreed that its value in June 1996 was £2m net. Thus the husband’s opening offer was seen to amount to £5m.
13.	By the time, however, of her closing submissions on 6 July 2009, Miss Stone seems to have considered that her opening offer might have been pitched too high. Perhaps she had already sensed that, however unusually, the judge was considering making an award to the wife based not on the higher, but on the lower, of the figures generated by application of the need principle and of the sharing principle. At all events, while not resiling from the offer of £5m, Miss Stone ventured calculations of the wife’s needs; and, in that she was able to argue convincingly that the wife’s need for accommodation was already satisfied, she proffered a capitalisation of her needs in alternative sums of only £3m and £4m. Thus, submitted Miss Stone in closing, the range of the award should be between £3m and £5m.
14.	It has proved a challenge for me to summarise the reasoning favoured by the judge in reaching his award to the wife of £5.4m. The following represents my best effort:
(a)	Mr Pointer’s claim for a lump sum equal to 40% of the net assets was inappropriate. Such an approach was arbitrary: [388]. In any event the claimed proportion was too high: [452].
(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: [383] 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: [457].
(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: [460] to [464].
(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: [458].
(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: [465] to [469].
(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: [434].
(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: [414] and [416].
(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: [473].
15.	Wisely the husband does not cross-appeal against the judge’s refusal to treat the increase in the value of the company between the date of separation and the date of its sale as a non-matrimonial asset. The evidence fully justified his finding that, apart from no more than 10% of it (which he then chose to ignore: [463] – [464]) the soaring jump in value was attributable only to what at [383] he called the “spring-board” which was in place within the company by the date of the separation.
16.	At the centre of the wife’s appeal is a challenge to the judge’s figure of 60% identified in [14(e) and (f)] above. On what basis did he arrive at it? Was it open to him to do so? 
17.	A subsidiary ground of appeal was that the reasoning identified in [14(j) and (k)] above by which the judge reduced the award from £5.8m to £5.4m was contrary to principle. On 24 June 2010 this court, constituted by my Lord, the President, Lord Justice Thorpe and Lady Justice Black, refused to grant permission to the wife to appeal on this ground; it held that, in context, £0.4m was de minimis. I respectfully agree. Nevertheless in my view the judge’s reasoning identified at (j) and (k) cannot be allowed to pass into our jurisprudence without comment: see [30] – [31] below.
18.	The judge’s finding that 60% of the net proceeds of the sale of the company represented what the husband had brought into the marriage was based not just on the fact that by the date of the marriage the company had been in existence for ten years but also, and in particular, on the nature of the husband’s employment prior to its inception.
19.	The husband’s evidence was that:
(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.
20.	Miss Stone convincingly demonstrates to us that before the judge she laid much stress on the above evidence to the effect that, with increasing responsibility and distinction, the husband had been employed in the North Sea oil and gas service industry since age 15, i.e. for 19 years prior to the inception of the company. In the light, however, of the approach to computation of the wife’s claim which Miss Stone commended to the judge, explained at [12] above, I am unclear how she sought to link the effect of that evidence with computation of the award.
21.	By contrast, the nature of the link favoured by the judge is very clear. The judge found that £15m (i.e. 60%) of the ultimate net proceeds of sale of the company in 2007 represented what the husband had brought into the marriage in 1996; and he did so in the light of the agreed fact that the value of the company in 1996 was only £2m. Even were allowance to be made for any spring-board in place within the company in 1996 (see [39] to [43] below) and for passive growth in the value of the company from 1996 to 2007 (see [44] to [50] below), it follows that the judge was placing a massive capital value on the personal capacity of the husband in 1996 to make money in his chosen field, born of the experience which he had gained during his employment in it since 1967. The judge was therefore capitalising the husband’s earning capacity at the date of the marriage and was proceeding, of course, to treat such capital as a non-matrimonial asset.
22.	Thus the judge said:
(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”: [79];
(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”: [155]; and
(c)	that the proceeds of sale of the company were “the product of his life’s work, skill and business decisions”: [425(iii)].
23.	That for the purposes of the sharing principle it might be appropriate to capitalise the earning capacity brought by one spouse into the marriage was an approach first favoured by Mr Nicholas Mostyn QC, as he then was, when sitting as a deputy judge of the Division in GW v. RW (Financial Provision: Departure from Equality) [2003] EWHC 611, [2003] 2 FLR 108. The husband was employed by an American bank in the City. At the date of the marriage he had assets of $500,000 and was earning $400,000 pa. Mr Mostyn said:
“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.
24.	In the decision of the House of Lords in Miller v. Miller, McFarlane v, McFarlane [2006] UKHL 24, [2006] 2 AC 618, Lord Mance commented on Mr Mostyn’s approach as follows:
“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.”
25.	In [172], quoted above, Lord Mance articulated three objections to the capitalisation of a spouse’s earning capacity at the date of the marriage. With respect, I agree with all of them.
(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?
26.	In my view the adoption and development of the doubts expressed by Lord Mance in Miller/McFarlane at [172], quoted above, should lead this court today formally to overrule the decision of Mr Mostyn in GW that a spouse’s established earning capacity at the date of the marriage falls to be capitalised, or otherwise brought into account, for the purpose of the sharing principle.
27.	In [23] above I questioned whether Mr Mostyn’s approach also required capitalisation of any such established earning capacity as still subsisted at the date when the financial proceedings were heard. Were we to overrule his decision, my question would not need to be answered. There is, however, a separate, wider question whether it is ever necessary or appropriate for the court to attempt to capitalise the earning capacity which a party has at the date of the hearing. There is no denying the extreme importance of an enquiry into the earning capacity of each party at that date: indeed s.25(2)(a) of the Matrimonial Causes Act 1973 makes it mandatory. A spouse’s earning capacity will usually be a central foundation of an order for periodical payments, and thus of any order by way of capitalisation thereof, pursuant to the principles of need and/or of compensation. Even if, however, an earning capacity may also sometimes be relevant to a fair distribution of the assets pursuant to the sharing principle, it does not follow that the earning capacity should itself be treated as one of those assets, still less that an attempt should be made to capitalise it. Today I have as little appetite for such costly artificiality as when, in 2007, I subscribed to the judgment of this court in Charman v. Charman (No 4) [2007] EWCA Civ 503, [2007] 1 FLR 1246, and thus to the reservations in this respect which the court expressed at the foot of [67] of it. 
28.	It follows that in my view the judge’s decision is flawed in that it ascribed a capital value to the earning capacity of the husband at the date of the marriage. The judge quoted, at [375], the remarks which Lord Mance made in Miller/McFarlane at [172]. But he quoted them in a section of his judgment entitled “Post separation assets …”; and he may not have had them fully in mind when, at [457], he alighted on the figure of 60%.
29.	Since the judge’s reasoning was wrong irrespective of the percentage which he adopted, it is inappropriate for me to spend time in trying to discern from the judgment how he arrived at the figure of 60%, which, at [472(i)], he described as likely to be favourable to the wife. His crucial conclusion was in the opening words of [457], as follows:
“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 [455], 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.
30.	I return to the separate part of the judge’s reasoning at the final stage of his calculations, which I have summarised at [14(j) and (k)] above. His general proposition, which he applied to the facts of the case at [473], was articulated as follows:
“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.”
31.	Prior to this court’s pragmatic refusal of permission to the wife to appeal on this point, Miss Stone had in writing elected not “in this case” to express a view about the validity of the judge’s proposition. So at any rate the refusal of permission has not suppressed a defence of it which would otherwise have been forthcoming. In a decision of the Court of Final Appeal, Hong Kong, given as recently as 12 November 2010, namely WLK v. TMC, FACV 21 of 2009, I have discovered some support for the judge’s proposition: see the judgment of Mr Justice Ribiero PJ at [84], although his remarks at [86] are arguably inconsistent with those at [84]. Notwithstanding its apparent endorsement from so distinguished a source, I feel emboldened to suggest obiter that the proposition of Charles J is confusing and unhelpful; that, in applying the principles of need and of sharing, the court is engaged in two separate exercises, which require it to refer to different considerations (Charman, cited above, at [70] and [72]); and that the suggestion that the result of the assessment under the need principle can be introduced into the assessment under the sharing principle in order to identify the extent of departure from equality is inconsistent with the guidance given in Miller/McFarlane, as recognised in Charman at [73] and as noted by the judge himself at [410], that in principle the higher assessment should found the award.
32.	In the light of the flawed character of the judge’s assessment of the award to the wife and of the fact that, in the light of the forensic history, a re-hearing, not sought by either side, is out of the question, it falls to this court to exercise the discretion which was vested in him. In that regard this court should with fortitude anticipate the inevitable criticism that, by reason of deficiencies in the evidence available to it, its own approach to the assessment is even more arbitrary than it would usually be.
33.	My view is that, in applying the sharing principle to this case, we should in the first instance adopt the approach commended to the judge by Miss Stone. We should therefore effect a division of the total assets of £25million into the part reflective of non-matrimonial assets and that reflective of matrimonial assets. But in doing so we should remember that, as Lord Nicholls stressed in Miller/McFarlane at [26], we are unlikely to need, still less to achieve, a precise division. The remaining step to be taken pursuant to Miss Stone’s approach will be easy partly because in this case there is no ground for sharing the non-matrimonial assets other than 100% to the contributor and 0% to the other and partly because, by contrast, there is no ground for sharing the matrimonial assets other than equally.
34.	My view however is that we should test the result suggested by the adoption of Miss Stone’s approach against application of Mr Pointer’s approach, namely by identifying, for allocation to the wife, such lesser percentage than 50% of the total assets as seems to make fair overall allowance for the husband’s introduction of his company into the marriage.
35.	Criticism can easily be levelled at both approaches. In different ways they are both highly arbitrary. Application of the sharing principle is inherently arbitrary; such is, I suggest, a fact which we should accept and by which we should cease to be disconcerted. Mr Pointer’s approach seems particularly by-and-large. But is the greater apparent specificity of Miss Stone’s approach an illusion? Powerful voices are raised against the accuracy of the types of valuation which her approach often requires. For example in H v. H [2008] EWHC 935 (Fam), [2008] 2 FLR 2092, Moylan J, at [5], described valuations of private companies as particularly fragile and suggested that their ostensible accuracy was no more than a chimera and that their purpose was to assist the court “in testing the fairness of the proposed outcome”. We may infer that Moylan J would have preferred in the first instance to adopt Mr Pointer’s approach and, at most, only to test the suggested result against application of Miss Stone’s approach. The exercises, on the one hand, of adopting A and of testing against B and, on the other, of adopting B and of testing against A may indeed have subtly different consequences. At all events in this case, particularly in circumstances in which a central valuation mandated by it has been crystallised by sale, I prefer in the first instance to adopt Miss Stone’s approach.
36.	Of course the adoption of Miss Stone’s approach in no way implies the adoption of the calculation which she pressed upon the judge. A major part of her calculation is no longer arguable. For the judge rejected her argument that the substantial increase in the value of the company following the date of separation was non-matrimonial: he found that, by that date, the company had developed the latent potential to generate the increase or, to use his metaphor, that in place within the company on that date was the spring-board from which it was generated. So our first step should be to take not the figure of £10m but the entire total of £25m.
37.	Our second step should be to ascribe to the company, a value, as at the date of the marriage, which is both realistic and apt to the context in which it is required. In that regard our starting-point should be the valuation of the company at that date upon which the respective accountants were ultimately agreed, namely £2m net. Of course the figure reflects the exercise by the husband of his earning capacity during the previous ten years: so, to the extent that the earning capacity of a spouse has by the date of the marriage contributed to the creation of capital, it will thereby be taken into account in his or her favour; but, for the reasons given above, such should in my view be the limit to which it is taken into account.
38.	In my view, however, there are two reasons why the sum of £2m requires substantial adjustment.
39.	The first reason for adjustment arises out of further consideration of the concept of latent potential or in the judge’s word, the spring-board. I am concerned lest our decision in this case were to be misunderstood as generally encouraging an enquiry into whether the professional valuation of a company at a specified date should be subject to increase by reference to the presence within it at that date of a spring-board. Mr Pointer correctly submits that a professional valuation calculated by reference to future maintainable earnings will generally reflect the value of any such spring-board. But there will be rare cases in which a judge may be persuaded that it has failed to do so; and in the present case this court must work on what in my view are clear findings by the judge, not subject to appeal, that at each of two different dates there were spring-boards in place in the husband’s company which the respective professional valuations failed to reflect.
40.	As I have explained, the judge made an express finding that, at the date of the separation, there was a spring-board in place in the husband’s company, not reflected in the valuation of £12m, to which in effect the entire increase in value up to the date of sale was attributable. Such was a finding vastly favourable to the wife in that it has precluded the husband from continuing to represent the increase as non-matrimonial.
41.	But the judge also made a finding that, at the date of the marriage, there was a spring-board in place, not reflected in the valuation of £2m, to which a significant proportion of its subsequent increase in value was attributable. The arresting evidence that, in 1997, i.e. only a year later, the husband received an offer to purchase the company for between £6m and £7m may reasonably have helped to precipitate the judge’s enquiry in this regard. At all events he referred, at [459], to “the ‘spring-board effect’ of the existing company at the time of the marriage.” And he said, at [456]:
“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.
42.	It would of course be wrong to follow the judge by increasing the figure of £2m to that of £15m for this first reason. The judge’s figure is substantially flawed by his allowance within it for the husband’s earning capacity at the date of the marriage. We are concerned only with the value to be attributed to the spring-board in place at that date, not with the value to be attributed to the subsequent activity of the diver or gymnast upon it. Indeed, even had the judge been right to allow for the husband’s earning capacity, his figure might well have remained substantially too high. Nevertheless, cautious though I am about allowance for spring-boards, I consider that, in circumstances in which the spring-board identified by the judge as being in place at the date of the separation has worked so severely against the husband, we must in fairness to him make some allowance for the spring-board identified as being in place at the date of the marriage.
43.	By reference to its latent potential at the date of the marriage I propose to take the value of the company at that date as being £4m rather than £2m. The figure is, again, highly arbitrary: I make no apology for this but it reinforces the need to test against some other approach the conclusion ultimately reached by reference to it. In accordance with the sentiments expressed by the judge in the difficult passage quoted, I also consider that not even a judge at first instance, with access to all the evidence referable to the reasons for the company’s later success, could secure acquittal of a charge of having been arbitrary at this stage of conversion of such a feature into terms of money.
44.	In my view the second reason for adjustment is the need to allow for passive economic growth in the company between the date of the marriage and the date of sale.  This was not a subject canvassed before the judge or at the time of the hearing before us so, at our request, counsel have made short submissions in writing upon it.
45.	In Rossi v. Rossi [2006] EWHC (Fam) 1482, [2007] 1 FLR 790, Mr Mostyn, again sitting as a deputy judge of the Division, said, at [24.2],
“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.”
46.	Like Singer J in S v. S (Ancillary Relief after Lengthy Separation), [2006] EWHC 2339 (Fam), [2007] 1 FLR 2120, at [111], I regard Mr Mostyn’s proposition as helpful and (subject to the fact that the yardstick of equality has been subsumed within the sharing principle) as accurate. Take a work of art or land with potential for development which a spouse has owned since prior to the marriage and which, without activity on his or her part, has substantially increased in value during it. The court would accept that the increase in its value during the marriage was as much non-matrimonial as its value at the date of the marriage: it would thereby allow for its passive growth. Passive growth is to be contrasted with growth as a result of contributions of one sort or another made during the marriage, i.e. of activity, irrespective of whether such is achieved with the assistance of a spring-board already in position. An analogous approach is apt in respect of assets inherited by, or given to, one spouse during the marriage.
47.	Two decisions at first instance demonstrate allowance for passive growth. In H v. H (Financial Provision: Special Contribution) [2002] 2 FLR 1021 the husband had during the marriage inherited in the U.S. assets worth £400,000 at the time of the hearing. In S v. S (Non-Matrimonial Property: Conduct) [2006] EWHC 2793, [2007] 1 FLR 1496, the husband had owned since before the marriage a portfolio of commercial properties worth £1m at the time of the hearing. The judges (Mr Hughes QC and Burton J respectively) classified the assets as entirely non-matrimonial. Neither sought to afford different treatment to the increase in value of the assets since the inheritance and the date of the marriage respectively; I doubt that it was even argued that they should do so.
48.	It appears from the quotation in [23] above that in GW Mr Mostyn QC uprated assets of $500,000 at the date of the marriage to $781,000 in order to reflect their “value in money today”. Of course an increase reflective only of inflation would not be an allowance for growth in real terms at all; but it would presumably be apt for application to assets kept only in liquid form. Mr Pointer argues, however, that it is also apt for application to the present case. In that he does not concede allowance for the spring-board in place at the date of the marriage, he adheres to the professional valuation of the company at that date in the sum only of £2m and concedes an increase only to £2.7m, being reflective of the increase of 35% in the Retail Prices Index between the date of the marriage and the date of its sale.
49.	The crux of Mr Pointer’s argument in this respect is that a small industrial company, such as was owned by the husband in the present case, requires active management and, even if well managed, may fail for a variety of reasons. There is in truth profound difficulty about quantifying an allowance for passive economic growth in such a case. But should the difficulty preclude its attempt? If at the date of the marriage the husband’s £4m (or, as Mr Pointer says, his £2m) had been invested in a portfolio of commercial properties, he, like the husband in S above, would have been the beneficiary of adjustment for any passive economic growth. If at the date of the marriage the husband’s £4m had represented the value of a minority holding in a company in which he was no more than an investor but which operated in a field identical to that in which his company actually operated, he would again have been the beneficiary of adjustment for any passive economic growth. I do not see how the law can logically decline to attempt to enquire into the existence and, if so, the amount of such growth by reference only to the nature of the husband’s investment.
50.	Although I accept Mr Pointer’s warning about the dangers inherent in attributing the level of success of public companies to small private companies, I believe that, in the light of its limited access to the relevant facts, this court now can do no better than to apply to the sum of £4m an increase of 116%, being the percentage increase in the FTSE All Share Oil and Gas Producers Index between the date of the marriage and the date of the sale. Thus allowance for passive growth lifts the figure of £4m to £8.7m.
51.	It is therefore my view that the best application of Miss Stone’s approach of which this court is capable would result in conclusions that the value of the non-matrimonial assets is £8.7m, say £9m; that the value of the matrimonial assets is therefore £16m; and that the award to the wife would be £8m.
52.	As I have observed, the question-mark to be set against the above calculation is properly recognised by a resolution to test its suggested award to the wife of £8m by the application of Mr Pointer’s approach. The sum of £8m represents 32% of £25m. My view of overall fairness to both parties, developed at an early stage and not displaced in the course of protracted subsequent reflection, is that an award of 40% to the wife, for which Mr Pointer contends, would be unfair to the husband and that the bracket fair to both would be between 30% and 36%. So the suggested award, albeit not precisely in the middle of the bracket, survives the test.
53.	I would allow the appeal and substitute the award to the wife of £8m for the judge’s award of £5.4m. I see no reason to require the husband to make any additional contribution in respect of the wife’s costs, other than (subject to argument) of this appeal. For application of the sharing principle would yield an award which of itself would amply enable the wife to meet her need referable to costs.
54.	By way of postscript I add that, at [1], the judge attributed the length of his judgment to the unsatisfactory way in which counsel on both sides had presented the dispute to him. He explained, at [476] to [483], that they had failed properly – in particular in writing – to identify for his assistance the “building blocks” of their respective cases, by which he meant the issues which each of them raised for his determination, the findings for which each contended referable to each issue and the evidence upon which each relied as justification for each finding. Very properly counsel have not taken up our time in seeking to challenge the judge’s criticisms of them in this appeal. So his criticisms of them stand. In such circumstances, however, perhaps it is only fair for me to compliment all four counsel, leading and junior, on the sharp focus of their short skeleton arguments for the appeal and on the efficient economy of their oral submissions at the hearing before us, which proceeded for only four hours.
Lady Justice Arden: 
55.	I agree and would express my gratitude to Wilson LJ for the succinct yet comprehensive way in which he has dealt with the issues on this appeal, a major achievement given the thoughtful but somewhat over-lengthy judgment of the judge.  I have some reservations about what Wilson LJ calls passive growth, but subject to that agree with the order which Wilson LJ proposes for the reasons that he has so carefully and clearly given.
56.	This is a case where the respondent’s company was extremely successful.  Under the judge’s application of the sharing principle, the appellant received only about 20% of its value on sale, and she seeks a substantial increase of the amount of the award.  This court draws no distinction between the homemaking/care-giving and breadwinning contributions of the parties to a marriage when it comes to the division of matrimonial assets, but it would be wrong for us in this case to give either party to the marriage a share of the non-matrimonial assets of the other. 
57.	What the respondent seeks is that the value of the business at the date of the marriage should be increased so as to reduce the size of the aggregate value of the matrimonial assets which have to be divided between them.  Moreover there is the question whether that aggregate value should be further reduced by the capitalisation of a notional income obtained on his non-matrimonial assets.
58.	I would have had great difficulty with the judgment of Wilson LJ had he proposed the valuation of the husband’s earning capacity at the date of marriage.  He does not propose this, but concludes that the company’s value as at the date of the marriage can be increased by £2m.  I am satisfied that the company can and should for present purposes be valued in the figure of £4m.  The market value of an asset is after all what a person is willing to pay for it and we are told that in the following year there was an offer of £6/7m for it.  In those circumstances, in my judgment, it is unfair to the respondent to value the company at £2m, even though this is the amount at which the experts valued the company as at the date of the marriage on the basis of p/e ratios.  To clarify, in my judgment the sum of £4m represents a figure which can fairly be taken to be the value of the company as at the date of the marriage.  The non-matrimonial asset is the company as it stood at the date of the marriage, and not the discounted present value of the future earnings of the respondent. 
59.	As to “passive growth”, I agree that in principle, in the circumstances of this case, an allowance should be made even though the asset is a private company the business of which has developed and expanded (in this case exponentially) during the marriage.  It may be difficult to compute growth on such an asset, as opposed to an asset such as a painting or vintage car or portfolio of investments that has always been kept separate and distinct.   I would take the same view about making an allowance for growth even if there had been an amalgamation of the company’s business with that of another company, though in such a case there may be even greater difficulties in practice in identifying the asset representing the original asset.  But here there has been no change in company’s line of business and the original line of business continued to form part of the business as it developed.
60.	However, I would query whether what Wilson LJ proposes in his judgment is really passive growth and reject the notion that the only growth that can be taken into account is passive growth.  First, as a matter of principle, when valuing the non-matrimonial assets at the end of a marriage, the court should so far as it can look at what has actually happened and not at what might have happened. In parenthesis, I would add that, because of this principle of “reality”, I would reject the graphs provided by Miss Stone seeking to establish the values of the company at certain dates based on an artificial assumption of a straightline growth up to eventual sale.   Secondly, if only passive growth is taken into account, the law rewards the spouse who buries her non-matrimonial assets in the ground rather than the spouse who actively manages them.  The correct analysis in my judgment, in circumstances such as the present, is that, where a spouse has a non-matrimonial asset of the present kind, he is entitled to that element of the company at the end of the day which can fairly be taken to represent the fruits of the non-matrimonial assets that accrue during the marriage, even if the fruits are the product of activity by him or on his behalf.  
61.	Moreover, here there was undoubtedly activity by the respondent in building up his company with outstanding success.    I have no reason to doubt that he worked extremely hard to achieve his success.  It is not therefore appropriate to add an allowance for inflation, as Mr Pointer urges us to do, but to try to find a barometer apt to measure the growth that actually occurred in this case. As an aside, Wilson LJ suggests that inflation might be appropriate in the case of assets kept in liquid form.  It seems to me that an allowance for inflation would not necessarily in my judgment be appropriate in that case.  Cash is likely to have been deposited with a bank and to have earned interest during the period of the marriage.  This interest can be calculated and an appropriate sum can be added to the value of the non-matrimonial asset.  In the unlikely event that cash had been kept in coin or notes (perhaps under the mattress), and in the likely event that it had then gone down in value, it is difficult to see why it is appropriate to make an allowance for the rate of inflation.  
62.	But how are such fruits to be ascertained when upon marriage the subsequent increase in value of the company becomes an asset that represents the matrimonial acquest?  There is no evidence as to the rate of return on the non-matrimonial asset as a separate asset and therefore as Wilson LJ states the only approach the court can take is to find a suitable index for equity investments.   This does not of course record the performance of Dominion, but of other companies in the market.  But which index?  Miss Stone suggests (without giving any reasons as to why it was appropriate to use this index) the FTSE Oil and Gas Producers Index.  This index is based on the performance of a small number of listed companies in that sector, including BP and Shell.  There is no evidence that that is the relevant index as Dominion is not an oil or gas producer (or a listed company).  It simply produces products for use in the drilling industry.  But I am content to assume that Miss Stone’s preferred index is an appropriate index because the fortunes of a company like Dominion (in particular, its turnover) may well follow those of the oil and gas production sector generally.   
63.	I have above limited any statement of principle to circumstances such as the present.  The company’s growth in this case was exponential, leaving a surplus even when allowance is made for indexed growth.  An allowance for growth in the manner proposed by Wilson LJ in this case simply cannot be used unless the company’s growth has far outstripped the index sought to be used.
64.	That leads me to the point that, as Wilson LJ’s judgment fairly recognises, the methodology in this case can be described as arbitrary or ad hoc.  However, the answer is a principled one when assessed by the cross-check of overall fairness (see above, paragraph 52).  In my judgment, that cross-check is an essential part of the reasoning for my concurrence in the result in this case.   Moreover, in my judgment, this court is entitled and bound to intervene in this case because the judge’s assessment, albeit reached after a long judgment, clearly results in an inadequate application of the sharing principle, and was thus clearly wrong.  I would not expect this court to intervene simply because it would itself have come to a different view as to the result if it had tried the case or simply because it would have applied some different methodology.
65.	For the reasons given above and (subject thereto) the reasons given by the President (whose judgment I have read in draft) and by Wilson LJ, I would make the order that Wilson LJ proposes.
Sir Nicholas Wall P: 
66.	I too agree that this appeal should be allowed for the reasons given by Wilson LJ, and I would like to associate myself entirely with the first sentence of Arden LJ’s judgment.  Like him, I would overrule the decision in GW v. RW (Financial Provision: Departure from Equality) [2003] EWHC 611, [2003] 2 FLR 108, and in this regard I specifically adopt the reasoning set out in paragraphs 23 to 26 of his judgment.
67.	My Lord’s expertise in this area of the law is infinitely greater than my own, and I thus make no comment on the means whereby he has reached his conclusions. However, it was with a sense of some relief that I read (in paragraph 52 of his judgment) that his view of “overall fairness to both parties” resulted in an award to the wife in a bracket between 30% and 36%. My own, admittedly crude analysis results – on the facts of this case and as a cross-check – in an old-fashioned third. There is a liquid pot of £25 million. One third is £8.3 million, which rounds down to £8 million. 
68.	Mr. Pointer QC rightly concedes that, on the facts, equality would not be just. Any smaller proportion – for example £5 million (one fifth)  -  would seem to me (a) to run the danger of  being seen to adopt the judge’s reasoning and (b) to be too small in the light of the fact that this was a 10 year marriage. Any greater proportion would, in my judgment, inflate the wife’s claim and be unfair to the husband, although the wife may regard herself as fortunate (1) that in the computation of the parties’ assets the judge took into account the money loaned to her by her parents (and in particular her mother) for the acquisition of her house and (2) that this court, in reviewing the judge’s exercise of discretion, was not minded to interfere with that element of the judge’s calculation. 
69.	I cannot, however, part from the case without making two points. The first is that it seems to me unfortunate that our law of ancillary relief should be largely dictated by cases which bear no resemblance to the ordinary lives of most divorcing couples and to the average case heard, day in and day out, by district judges up and down the country. The sums of money – including the costs - involved in this case are well beyond the experience and even the contemplation of most people.  Whether the wife has £5 or £8 million, she will still be a very rich woman and the application of the so called “sharing” and “needs” principles may look very different in cases where the latter predominates and the parties’ assets are a tiny percentage of those encountered here.
70.	My second point is that there are aspects of this case which, as Head of the Family Division, I cannot pass over without comment, and I think I owe it to the  judge, the profession  and, above all to the parties, to explain why that is so.
71.	The case was commenced by the wife in 2007. It occupied the time of a High Court judge for 10 days in June and July 2010. (I leave out of account interlocutory hearings and the abortive hearing in March 2010). The judge then spent what must have been a substantial amount of the long vacation writing a judgment of prodigious length and complexity. We were told at the bar, and I accept, that it took leading counsel for the wife two days to read it and to prepare his editorial corrections. It was then handed down.  The order finally emerged on 23 February 2010.  The wife has now successfully appealed to this court. We have substantially increased her award. Our order will apply on the date in 2011 when our judgments are handed down.
72.	This time-table is deeply dispiriting. The costs are disproportionate. The judge’s judgment, I have to say, despite the judge’s defence of it, is over-long and over-complex. Everyone agreed that the essential issues could be reduced to a single sheet of paper, and for once the court was dealing with liquid assets - £25 million if not in cash then in readily realisable form.
73.	When I was a puisne judge at first instance, I sat in this court as the third member of the constitution hearing the case of  HM Customs and Excise and another v A and another [2002] EWCA Civ 1039,  [2003]  2 All ER 736. Schiemann LJ, who gave the leading judgment in the case said:
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;
iii)   ………….	
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. 
74.	I echo all the sentiments eloquently expressed by Wilson LJ in paragraphs 3 and 54 of his judgment. Speaking for myself, however, I do not think that the length of the judgment was justified by the judge’s laudable aim of ensuring that such cases are properly presented.  I thus feel obliged to remind all judges who sit at first instance (as I regularly now  do myself) of what I have extracted from what Schiemann LJ said in HM Customs and Excise and another v A and another, which, in my  judgment applies directly to the judgment under appeal in the instant case.