Strand, London, WC2A 2LL
B e f o r e :
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Mark Johnstone (instructed by Davies Arnold Cooper) for the Respondent
Hearing dates: 5, 6, 7, 8, 9 and 19 November 2007 and 26 March 2008
Crown Copyright ©
The Hon. Mr Justice Moylan :
"Mr Sharp has drawn my attention to some passages … where [Baroness Hale] has highlighted some of the rationales which may, in a given case, necessarily be implicit in achieving fairness and which should be borne in mind in the divisionary process … They are very helpful in ensuring the court achieves a fair result and does not become stuck or formulaic in its approach as it has done from time to time in the past … However, care needs to be taken to ensure that these passages are not treated as some kind of quasi-statutory amendment.
Indeed, care needs to be taken that this guidance does not itself result in the court's approach becoming stuck or formulaic by reference to artificial constructs such as matrimonial property".
Section 25 Factors
"This letter is an indication of sale price and not a formal valuation that can be used for loan, matrimonial or security purposes. If you require a valuation from a qualified chartered surveyor, then please contact our professional valuation department".
These same words had appeared in an earlier appraisal dated 23rd March 2007.
Standard of Living.
Financial Needs and Obligations
The Value of the Business
"In assessing the value of the above companies, I have adopted an Enterprise Value approach. This involves the assessment of the future maintainable earnings of the restaurant business, and an application of a multiple to those earnings to calculate the "Enterprise Value" or capitalised value of the business. From this Enterprise Value, the net debt of the companies is deducted in order to determine the Equity Value".
The future maintainable earnings he adopts are the earnings before interest and taxation ("EBIT").
"In my experience, the best guide to the value of any company or business is a comparison with a real live transaction between unconnected parties as witnessed in the market place at a similar period in time to that at which the valuation is being undertaken.
The text book definition of the value of a business is usually referred to as the price, which a hypothetical willing buyer will pay a hypothetical willing seller in an open market situation, both parties having equal knowledge and acting for self interest and gain.
Therefore, I should like to draw the court's attention to the transaction on 22 May 2006, when the interest of the underlease holders was acquired for the total consideration of £3,029,866.
In my opinion, there can be no better benchmark or yardstick for the true value of that part of this business at 22 May 2006 as the parties were not connected, the transaction was freely negotiated and, therefore, indicates the price that an actual willing buyer paid an actual willing seller. I refer to this later in this report in my alternative calculation of the value of the business."
The Wife's case is summarised first in Mr Nedas' Report. It is contended that £80,000 must be added to the annual profits to reflect cash and other undeclared benefits allegedly taken/received by the family from the business.
"The Wife has advised me that, to her knowledge, the source of the funds used to fund these expenses did not come from the personal bank accounts of the parties or other funds of the marriage. Rather, the Wife's understanding is that the funds, mainly cash, were gained by way of various "rebates" or "kickbacks" the Husband received from suppliers to the restaurant, for example, the fruit and vegetable supplier.
If these costs were not met by cash, then funds from the restaurant's bank account were utilised."
"I now deal with the benefits of cash which H received ever since I have known him. He usually got at least two lots of cash in brown envelopes, once a month, of between £1,000 and £1,500, one from Mr F who supplied fruit and vegetables and often came to the house, and the other from the suppliers of meat/fish who did not come to the house. This went on until he left although by the time of the break up of the marriage H was secretive albeit I saw a lot of cash in his wallet and he used to keep wads of cash in the safe. Also over the years H has been wont to sell privately champagne, wine and other spirits to customers which he charged the restaurant. These benefits did not just include food and drink but extensive laundry, dry cleaning and all kitchen implements and equipment in both our homes in London and France. The cash also was exchanged at local bureau de change for Euro and previously French francs to fund his house in France, paying for over the years substantial new slate roofing (6 bedroom manor house and 3 large attached barns), new central heating and bathroom, windows and doors, gardener and housekeeper, gardening machinery and our supplies whilst we were in France … We entertained lavishly, sometimes having 20-40 people for the weekend with endless supplies of food and wine. All this is set out in great detail by Mr Nedas in his report and I will not repeat same. What Mr Nedas says is accurate.
Whilst dealing with benefits, it is now apparent that H skimmed off cash by use of a tronc system after I left. The tronc is monies obtained from service charges to customers on their bills. I am advised this is an entitlement of the staff, not the proprietor. However, H has been taking 20%- 30% of that tronc as has been admitted by some of the staff to me when they telephoned and complained earlier this year."
"As there appears to have been an actual increase in turnover in 2007 and this may have been instigated in order to offset the increase in rates, I believe it is only fair to accept an increase in profitability of 8.5%."
"As I detailed in my preliminary report, in determining an appropriate multiple to apply to FME, specific regard must be given to the restaurant, its trading history, and market presence. I have considered the EBIT multiples that are known to have been utilised in the sale of restaurant businesses of a similar nature and size.
I have conferred with and sought information and data from my colleagues who specialise in the restaurant and leisure sector. My firm has considerable experience in selling restaurant businesses, assisting in acquiring restaurant businesses and in insolvency assignments.
In my preliminary report I considered an EBIT multiple of between 8 and 10 as being appropriate. Given the current information that my colleagues have provided and my understanding of the business and its market, my opinion is that an EBIT multiple of between 8 and 10 is still appropriate".
"The earnings multiple a purchaser will be willing to pay for a restaurant business is always guided by the characteristics of the particular business. The following factors are usually particularly important:-
i. Absolute profit levels and the rate of profit growth;
ii. The market saturation for restaurants of the type;
iii. Whether the restaurant's concept is capable of rollout; and
iv. The quality of the management and infrastructure.
In my experience, the multiple payable for a single site restaurant will usually be less than that payable for a growing multi-site operation because the business is smaller and the roll out potential not proven. The difference between the size of the multiples could be as much as one third but could be less depending upon a prospective purchaser's view of the prestige and development potential of the business being acquired."
"As far as I am aware, multiples generally have not increased or for that matter reduced significantly since May 2006. However, I do accept that the price asked of H may have been slightly less than they might have asked of an investor similar to themselves, because of the relative ease of the transaction between two parties who both knew the restaurant, which would possibly have helped to facilitate the transaction.
I would suggest, therefore, a small increase in the multiple to reflect this, but would consider that no multiple higher than 6 is appropriate and the actual transaction between them and H provides, in my opinion, first class evidence."
"This difference in treatment of matrimonial and non-matrimonial property might suggest that in every case a clear and precise boundary should be drawn between these two categories of property. This is not so. Fairness has a broad horizon. Sometimes, in the case of a business, it can be artificial to attempt to draw a sharp dividing line as at the parties' wedding day … Accordingly, where it becomes necessary to distinguish matrimonial property from non-matrimonial property the court may do so with the degree of particularity or generality appropriate in the case."