Jersey Unreported Judgments

[2003]JRC116

royal court

(Samedi Division)

 

9^th July, 2003

 

 

 

 

Determination of ancillary relief.

 

 

Advocate A D Robinson for the Petitioner

Advocate A D Hoy for the Respondent

 

 

judgment

the bailiff:

1.        The court is sitting to determine a fair division of family assets and the appropriate ancillary relief in a suit between the petitioner (to whom we shall refer as 'the wife') and the respondent (to whom we shall refer as 'the husband').  The background history to the suit has been fully set out in affidavits filed by the parties and others, and it is unnecessary to do more than record a brief synopsis.

2.        The wife is now aged 57 and the husband nearly 54.  They met in 1971 and married in Jersey in December 1973.  They began their married life in modest rented accommodation.  At that time the husband was working as a newly qualified accountant and the wife was working as a senior trust officer.  Neither party had any financial assets of significance.  The wife continued in employment until shortly before the birth of her first child, R, in 1977.  By then plans were at an advanced stage for the husband to set up his own business with a friend. 

3.        That business has prospered and expanded and is now a substantial group of financial services companies to which we shall refer as 'the CCB Group'.

4.        In the meantime, the family has also expanded.  The wife gave birth to three more children, M in 1980, H in 1986, and J in 1988.  The wife's time and efforts have been devoted to bringing up her family and to making the domestic arrangements for the running of the substantial house in which they all lived.  Both parties have enjoyed and continued to enjoy a very comfortable lifestyle.

5.        Counsel for the wife drew our attention to some of the recent English authorities in relation to cases where the joint assets were substantial.  The leading case is a decision of the House of Lords in White v White [2001] 1AC596.  Counsel submitted that the following principles could be drawn from this case -

(i)        there should be no discrimination against women;

(ii)       there should be no unfair discrimination against a party who has not been the breadwinner; and

(iii)      there should be an acknowledgement of the importance and value in a matrimonial partnership of the contribution made by the homemaker. 

6.        Counsel for the husband did not dissent from this submission and we too agree that it is the right approach.  Similar arguments were addressed to the court in J v M 2002 JLR 330.  We cited and there adopted a passage from the judgment of Lord Nicholls in White v White and then stated at para 29  -

'The touchstone in all cases involving a division of matrimonial assets is fairness.  The court must try to achieve fair financial arrangements between the parties, and the welfare of the children is a primary consideration.  There is no place for discrimination between husband and wife.  Where they have both, by their own efforts, built up the family assets, even if their contributions are different in nature, fairness requires that those contributions  be given equal weight.  There is no reason why any surplus of assets, once the reasonable needs of the parties have been satisfied, should automatically go to the husband.  Nonetheless a ruthless application of the principle of equality will seldom lead to fairness.  The court is required to take into account all the circumstances of the case.'

We would neither add nor subtract anything from that statement of principle.  The overriding objective is to make a fair financial arrangement between the parties. 

7.        The powers given to the court by the Matrimonial Causes (Jersey) Law 1949, as amended, allows us a broad discretion to arrive at a fair solution.  In general, the Court should strive to achieve a 'clean break'.  It is not in anyone's interest for matrimonial differences to be perpetuated and for argument to continue over financial matters, particularly where there are children of the family.  Counsel for the wife had some reservations as to whether a clean break was possible in this case, having regard to the fact that the most valuable asset by far, the husband's interest in the CCB Group, was not capable of division.  He conceded nonetheless that a clean break was desirable.  We have arrived at a result which will achieve a clean break, but which we believe to be fair. 

8.        What then are the assets of the parties, and what is their value?  In most respects the parties have agreed upon a valuation of the different assets.  They have not, however, been able to agree the value of the matrimonial home, nor of the husband's interest in the CCB Group.  There are three other minor points of disagreement which we have to resolve.  We take these in turn. 

9.        The matrimonial home (to which we shall refer to as 'the house') is a substantial property set in its own grounds in St John.  Valuations were placed before us, and we heard evidence from Mr Stephen Bridle for the wife and Mr Roger Trower for the husband.  It is unfortunate that they were unable to agree upon their valuations.  We do not say that critically because both valuers discussed their findings and did attempt, we are told, to resolve their differences.  It is, however, almost inevitable that experts retained by one side or the other will carry out their task with the aspirations of their own client in mind.  We express the hope that in future it will be possible for both parties to a matrimonial dispute jointly to instruct an estate agent to value a matrimonial home.  There would be a saving of cost and, if the valuer knows that he is representing both parties, an incentive to arrive at a figure which is fair to each of them.  Valuation of residential property is more of an art than a science and the court, absent a complete rejection of the evidence of one expert, is likely to arrive at a figure somewhere in the middle.

10.      Both experts are experienced estate agents.  Mr Bridle has been in practice for twenty-five years; Mr Trower has been in practice for twenty years.  Neither has any professional qualification, other than the experience gained from many years of practice.  Mr Bridle initially valued the property at £900,000, while Mr Trower valued it at £1.2 million.  Mr Bridle's valuation was affected by two factors in particular.  First, he had noted rainwater ingress on the internal walls of part of the main house, and the cause was not immediately apparent.  He also noted further rainwater ingress in a single-storey lounge/lobby linking the main house with a barn.  He thought that this lounge/lobby was in a very poor condition.  Secondly, Mr Bridle had noted the poor condition of the existing septic tank and soakaway drainage system.  Replacement of the system or connection to the Island's main drainage system would in either case be very expensive.  He thought that a figure of between £150,000 and £200,000 needed to be spent on the property to bring it up to the required standard.  Mr Bridle was also rather pessimistic about general market conditions, but in giving evidence, and following his discussion with Mr Trower, he increased his valuation to £950,000. 

11.      Mr Trower had taken account of the problems with the sewage system and the ingress of water when arriving at his valuation.  He was not so pessimistic about market conditions.  He thought that the local market was picking up, even if interest by prospective immigrant buyers had slowed down.  He agreed, however, that some expenditure on the property was needed.  When giving evidence, he told the court that if £176,000 were spent on it, he would put the property on the market for £1.35 million and hope to achieve £1.2 million. 

12.      In cross-examination he was tested on this statement, which we found to be puzzling.  If, having renovated the property to the extent of £176,000, he would expect to achieve a sale at £1.2 million, how could the property be worth the same amount without any renovations having been undertaken?  Mr Trower, however, held to his opinion that £1.2 million represented the current value.

13.      We think that Mr Trower must be taken to mean (although it is not what he said) that £1.2 million would be a sensible asking price for the property in its existing condition.  Acknowledging that it is difficult for the court to resolve differences of opinion between experts, we will, taking account of all the evidence as best we can, attribute a value to the property of £1 million. 

14.      We turn to the value of the husband's interest in the CCB Group.  Here again, the valuations of the forensic accountants were substantially different, although in this instance, we are inclined to think that the process is more of a science than it is in relation to domestic property.  The experts were directed prior to the hearing to discuss their respective valuations with a view to narrowing the points of difference.  This they did, and the difference between them of £3,402,367 had shrunk by the time of the hearing to £1.5 million.  We express our gratitude to both of them for their constructive approach to what was a difficult exercise.

15.      The wife relied upon the evidence of Mr Peter Beamish.  Mr Beamish is a chartered accountant who qualified in 1973 and who has practised in Jersey since 1984.  He is a partner in the firm of Deloitte Touche.  He has been involved in many forensic examinations and is an experienced investigator.  His opinion was given on the basis of information made available to him.  He did not suggest that the husband had concealed information from him, but he stated that it had taken a considerable amount of time to get what he wanted and that some information was still outstanding.  Up-to-date information on a Swiss subsidiary was not available, and Mr Beamish thought that had a value, although the latest figures showed it to be making a loss. 

16.      Mr Beamish put a value on the husband's interest in the CCB Group at £4.4 million.  In giving evidence he told the Court that he had revisited the figures and that, in his opinion, the CCB Group was a very attractive asset which was worth a great deal to the husband. 

17.      The principal point of difference between Mr Beamish and Mr Anthony Pushman, who gave evidence for the husband, was as to the method of valuation.  Mr Beamish adopted the Dividend Yield Method ('DYM').  The DYM values the historical or future anticipated dividend stream of a company on an investment return basis.  It computes a capital value for the company based upon the dividends, at a yield comparable with that achievable from a similar investment.  In the first instance, this method relies upon the declared dividend stream of a company, although it is important also to take account of cash actually withdrawn.  Mr Beamish reported that the husband had withdrawn £2, 978,362 from the business for the five years ending 31st May 2002, whereas dividends declared over that period amounted to £3,038,000.  Mr Beamish's evidence was that the long-term yield available from the stock market was around 3%.  A more risky investment, such as venture capital, would command a yield of about 15%.  In valuing the CCB Group, Mr Beamish has originally taken a yield of between 7% and 9%.  In response to discussions with Mr Pushman, Mr Beamish had increased the yield to 10%.  He was unwilling to go higher because he did not see the business of the CCB Group as a high-risk business. 

18.      Mr Pushman is a chartered accountant who qualified in 1979.  He is a partner in Ernst & Young whose primary activity has involved audit business.  He has, however, carried out a number of company valuations in the last ten years.  Mr Pushman considered that the appropriate method of valuation of the CCB Group was to apply a Price/Earnings Ratio ('PER').  In his view the DYM was best suited for the valuing the interest of a minority shareholder who had no control over the level of dividends distributed.  His evidence was that the interest of a controlling shareholder would traditionally be valued by applying a PER.  By this method a multiple is applied to post-tax profits.  The level of multiple depends upon the risk attached to the business.  Mr Pushman had originally had taken a multiple of four to five, but after discussion with Mr Beamish, had increased it to a multiple of six to seven.  Applying those multiples and taking the mid-point between them, Mr Pushman had valued the husband's interest in the CCB Group at £2.9 million.  If the husband were minded to sell, and an offer to purchase his interest in the CCB Group at that figure had been received, Mr Pushman stated that he would advise the husband to accept it. 

19.      One surprising aspect of the evidence of Mr Pushman related to the instructions upon which it was based.  Mr Pushman had not been instructed to value the Swiss subsidiary, but only the principal trust company operating in Jersey.  Mr Pushman had accordingly not factored in any value for the Swiss subsidiary.  It is true that the Swiss subsidiary has not yet, on the figures available to Mr Beamish and to the Court, made a profit.  But it is clear that a significant percentage of the business formerly conducted in Jersey has been transferred to Switzerland.  In May 2002 the turnover of the Jersey business was approximately £3 million, whereas the turnover of the business in Switzerland was £1 million.  In Mr Beamish's view the Swiss business was poised to move into profit.  Nevertheless that aspect of the CCB Group had been excluded from Mr Pushman's brief. 

20.      We found the evidence of Mr Beamish to be the more persuasive.  Without in any way doubting the professional expertise of Mr Pushman, we gained the firm impression that Mr Beamish's experience as a forensic investigator had enabled him to get closer to the heart of the matter.  The PER may well be the appropriate method of valuation looking at the matter from a buyer's perspective.  But the CCB Group is not for sale and we have to try to assess the value of the husband's interest on a realistic basis from his perspective.  Notwithstanding the evidence of Mr Pushman, we think it highly unlikely that the husband would contemplate for one moment selling a share in a business which in 2001 yielded annual profits for him approaching £1 million at a price of £2.9 million.  We agree with Mr Beamish that the husband is a very astute businessman who has responded to the perceived threats to the financial services industry in Jersey by spreading the risk and placing the CCB Group in a position where it can very quickly respond to changed political and market conditions.  We note that one of the husband's partners is in the course of buying out the share of another partner which appears to demonstrate confidence in the future of the CCB Group.  We accept the evidence of Mr Beamish that the CCB Group is a very attractive asset which is worth a great deal to the husband.  We also agree that the DYM is the appropriate way of valuing the CCB Group and the husband's 63% interest in it.  We will value the husband's interest, in accordance with the evidence of Mr Beamish, at £4.4 million. 

21.      Three other points of disagreement require resolution.  First, the husband has suggested that account should be taken of a promise to give M £150,000 on his twenty-fifth birthday in 2005.  Mr Beamish's evidence was that no accountant would regard that as a true liability.  We agree and will not allow that deduction from the husband's net assets.  Secondly, it is claimed by the husband that the value of a loan receivable from one of his partners, Mr Bell, should be discounted from £270,000 to £166,000.  The reason for such a discount is said to be that the loan is not recoverable until either the husband or Mr Bell leaves the partnership.  Mr Beamish considered that this was an insufficient reason to discount the value of the asset.  We agree, and will value the loan in its full amount of £270,000.

22.      Thirdly, there is a disagreement as to the value to be attributed to W H Limited.  The net assets have been valued by Ernst & Young at £1,388,683 and by Deloitte & Touche at £1,121,908.  The difference is explained by withdrawals from the company's bank account of £102,587 between January and April 2003, and the cost of building works at the property of £164,066.  We have assumed that the husband has paid the interim maintenance to the wife ordered by the Court last year.  On that assumption, there seems to us no reason why the wife should benefit additionally from the cash withdrawals that she has made.  As to the expenditure on the property, it seems to us that this will have enhanced its value.  If we were to deduct this expenditure from the value of W H Limited, and to award the property to the wife, she would be receiving a double benefit.  We accordingly value the company at £1,388,683.

23.      The husband has made an open offer in a letter of 21st March 2003.  That letter accepts that the award to the wife should include the property, the contents (save to the extent of paintings valued at £15,000), 8 Tesson Mews, the timeshare at the Four Seasons Country Club, motor vehicles, W H Limited, insurance policies (valued however at £100,000), jewellery and a part asset of H Limited valued at £304,000.  The total value of the offer, as contained in the letter, is £3, 180,382 but that figure needs to be adjusted as the result of decisions made earlier in this judgment.  The property has been valued at £1 million (not £1.25 million) and W H Limited has been valued at £1,388,683 and not £1.4 million.  The value of the husband's offer, having adjusted those values, is £2,919,065.  The husband's calculations and open offer are, of course, based upon a lower valuation of his interest in the CCB Group than that which we have arrived. 

24.      The parties have very helpfully produced a statement of joint assets and liabilities.  Following the decisions at which we have arrived, set out above, we can state that the total net assets of the parties are £8,875,655.  The assets are set out in the table below:-

Asset	Value
The property (matrimonial  home)	£1,000,000
Contents of the property (excluding paintings)	£21,380
Contents of Les Talus	£5,000
The husband's current account	£10,535

 

Royal and Sun Alliance Personal Pension	£96,456
Norwich Union Personal Pension	£78,932
Norwich Union Personal Pension	£14,504
Scottish Widows Regular Savings	£29,877
Standard Life Investment	£90,681
The Husband's Motor Vehicles	£45,000
The Wife's Motor Vehicles	£41,000
Loan Receivable - N J M Bell	£270,000
8 Tesson Mews (value of interest)	£30,000
Timeshare - Four Seasons Country Club	£4,000
Oil paintings at the Property	£55,400
Oil paintings at CCB offices	£17,500
The wife's jewellery	£9,900
The husband's jewellery	£13,800
W H Limited	£1,388,683
H B H Limited	£119,284
H Limited (share of assets)	£363,636
Loans receivable from H Limited	£803,385
CCB Group	£4,400,000
LESS
Net liability re Mini Cooper S for M	£13,000
The wife's overdrawn current account	£20,298
TOTAL	£8,875,655

 

If we were to apply an equal division of assets, each party would receive £4,437,827. 

25.      The wife's share could be awarded in the following manner:-

Asset	Value
The property (matrimonial  home)	£1,000,000
Contents of the property (including paintings)	£61,780
8 Tesson Mews (value of interest)	£30,000
Timeshare - Four Seasons Country Club	£4,000
Motor vehicles	£41,000
Wife's jewellery	£9,900
W H Limited	£1,388,683
Insurance Policies (Scottish Widows and Standard Life)	£120,558
Cash adjustment	£1,781,906
TOTAL	£4,437,827

 

26.      We must now consider both the practicality of such an award (in the sense of the ability of the husband to give effect to it) and its inherent fairness.  Mr Robinson accepted that there would inevitably be some disparity of income between the husband and the wife.  He drew our attention, however, to a passage from the judgment of Coleridge J in G v G [2002] 2FLR 1143 at 1159 where the judge stated -

"After a marriage of this length, and with the quality of each party's respective contributions, fairness dictates, in my judgment, that as far as possible they should leave the marriage on terms of broad financial equality.  But equality does not necessarily mean precisely 50% of the value of a given assets schedule on a given date.  It means leaving each side in a position of broadly similar financial muscle".

Counsel for the husband accepted this principle.  Counsel for the wife placed before us a schedule showing a hypothetical income equalisation exercise based upon a 50/50 split in assets.  It is incontestable that there would be, on the basis of the allocation to the wife of the assets listed in paragraph 25 above, a gross disparity of income of some £300,000 per annum.  As counsel for the wife has sensibly conceded, some disparity is inevitable.  The wife has chosen to take the security of substantial assets in property, one of which is non-income bearing.  The husband has the (relative) insecurity of his interest in the CCB Group.  Some movement towards equalisation of income is, however, in our judgment appropriate.  This will mean that the wife receives, in capital terms, a little more than 50% of the joint assets.  We justify this approach on two grounds.  First, although we have accepted the evidence of Mr Beamish as to the value of the husband's interest in the CCB Group, we have a strong feeling that the valuation is conservative; it is not improperly conservative but, in our judgment, it is certainly not unfavourable to the husband.  Secondly, we have to take into account the fact that the wife has lost the opportunity to develop any significant earning capacity.  She has devoted herself over thirty years to the care of her family and she is (in the absence of any new relationship) likely to be reliant upon this award for financial stability in the future.  The income that she receives is an important part of that financial stability. 

27.      We have also to take account of the husband's ability to raise capital in order to meet whatever cash adjustment is included in our award.  We take account of the fact that there were, as at 31st May 2002, accumulated but undistributed profits due to the husband from CCB Group in the sum of £1,008,738.  The husband has no significant debt, and will be left with a highly successful business which has produced very large profits in recent years.  We have reached the conclusion that the husband will find no difficulty in making financial arrangements which will enable him to meet the obligation contained in this award to provide a cash sum to the wife in the middle term, that is within five years. 

28.      Having balanced matters as best we can, we have arrived at the conclusion that the award set out in paragraph 25 above, subject to increasing the cash adjustment from £1,781,906 to £2,200,000, is a fair award.  That will produce a total award to the wife of £4,855,921, or approximately 56% of the joint assets.  The cash adjustment of £2,200,000 must be paid by the husband to the wife within five years of the date of this order.  Pending payment of that amount, the husband will pay interest on that capital sum to the wife on any outstanding balance at the rate of 6% per annum monthly in arrears, the first proportionate payment to be made on 1st August 2003. 

29.      The income available to both parties as a result of this award, having regard to the information contained in the hypothetical income equalisation exercise produced by Deloitte & Touche, appears to us to be as set out in the table overleaf.  We think that a reasonably achievable rate of return on the investment income of £2.2 million would be 5%. 

Source of Income	Husband	Wife
Rental - Tesson Mews @ 6%		£1,800
Investment Income (on £2.2 million at 5%)		£110,000
Return on W H Limited		£25,691
Return on H B H Limited @ 5%	£5,964
Dividend Income CCB Group	£352,800
Investment Income H Limited - Loans	£17,760
Salary/Directors Fees	£128,310
Notional Income from Property Owned by W H Limited @ 5% on £330,000		£16,500
TOTAL	£504,834	£153,991

The discrepancy between the income available to the husband and the wife is of course reduced by the cost of funding the cash adjustment of £2.2 million.  If that sum is borrowed at 2% over base rate (5.75%) the interest cost will be £126,500.  In addition, provision must be made to pay off the capital.  Painting with a broad brush, and assuming that part of the cash adjustment is borrowed, it seems to us that that could be achieved, bearing in mind the undrawn profits in the CCB Group available to the husband, over a five to seven year period without reducing unacceptably the income available to the husband. 

30.      We have not ignored that the fact that the husband has at present no home of his own.  He does, however, share the home of the co-respondent and it was not suggested to us that his needs in terms of housing were immediate.  We have also taken into account the fact that in time the wife may wish to move to a smaller home.  If she were to do so, further income could be achieved from the release of capital currently tied up in the property.

31.      It remains only to deal with the question of maintenance for the two minor children.  H is currently living with the husband and the co-respondent and no provision needs to be made for her.  Her maintenance will continue to be at the charge of the husband.  Care and control of J is however, or will be, vested in the wife.  A schedule of her needs as perceived by the wife has been placed before us.  In summary, counsel seeks maintenance for J at the rate of £50,000 per annum.  A significant part of this figure relates to the cost of education.  School fees are put at £20,000 per annum and travel to and from England at £2,000 per annum. 

32.      We have given careful consideration to the different items of expenditure claimed in the schedule.  We also take into account the cost to the husband of meeting the award set out in this judgment.  We think that the justice of the case would be met by ordering the husband to pay £37,000 per annum to the wife for the maintenance of J, being £20,000 for school fees, £2,000 for travel, and £15,000 for all other expenses, until she ceases to be in full-time education. 

33.      We conclude that the figures at which we have arrived in paragraphs 25, 29 and 32 above are fair to both parties.  We accordingly make those awards.

34.      Finally, we express our thanks to both counsel for the orderly way in which the authorities, documents and skeleton arguments have been presented to us.

Authorities

White -v- White [2001] 1 AC 596.

J -v- M [2002] JLR 330.

G -v- G [2002] 2 FLR 1143.