D v D [2007] EWHC 278 (Fam)

IN THE HIGH COURT OF JUSTICE

FAMILY DIVISION

[2007] EWHC 278 (Fam)

Case No CaseNo:FD05D00382

Venue Royal Courts of Justice, Strand, London, WC2A 2LL

Between

DApplicant

FirstRespondent

B Ltd

SecondRespondent

Before

Mr Justice Charles

Jeremy Posnansky QC and Stephen TroweH (instructed by Mites Preston & Co) for the Applicant

lan Booth (instructed by SAS Daniels) for the First Respondent

Hearing dates: 11 to 15 December 2006

[1]Charles J : Introduction The petitioner in this case claims ancillary relief. For convenience, I shall refer to her as the wife and to the respondent as the husband.

[2]The parties were married in October 1971 when they were both 27. The wife is 63, and at the date of the hearing in December 2006 the husband was due to have his 63rd birthday at the end of the month. The parties had been living together for about a year before the marriage. Throughout that period, and until April 1978, both the husband and the wife were working. The wife was a features editor on a weekly magazine and the husband was a sales representative for a company involved in trade concerning metals. In April 1978 the wife gave up work because she was pregnant. Twin girls, who are the only children of the marriage, were born in October 1978. After the birth of the girls the wife never returned to full-time employment but she did occasional freelance work as a journalist. It was not asserted that her income from this was relevant. My understanding is that the work was occasional and something the wife enjoyed.

[3]It was common ground before me that: i) the marriage was a long one and a traditional one in the sense that the wife stayed at home after the birth of the children and the husband was the breadwinner, and ii) all the assets of the parties have been acquired during the marriage, and therefore iii) on the face of it, that this is a straightforward case because in it the application of the cross check or yardstick of equality results in an equal division.

[4]There are however complications as to how this agreed equality sho uld be achieved and whether there should be some adjustments to the division of the assets in particular in respect of expenditure by the husband. There is also an issue as to whether the husband's holding company owns a beneficial interest in the matrimonial home.

[5]In my view the complications and the problems in this case have been increased by a combination of the case being prepared in a manner that fell well below the standard the court is entitled to expect and the attitude and conduct of the parties (in particular the husband). The assets

[6]These can conveniently be divided as follows: i) the matrimonial home, this is in central London, it is held on a long lease and it has five floors. The basement has for many years been used as an office for the husband's companies. The top four floors have been the matrimonial home. It is, and throughout the ownership of the parties it has been, subject to an interest only mortgage of about £140,000. The mortgage debt now stands at a little below that figure. It has been valued and the net value after deducting sale costs and the mortgage is put at £2.143 million. That figure needs further consideration in the light of the dispute whether the holding company owns a beneficial interest and the tax consequences of that (and of the company's occupation over many years of the basement as offices), ii) the pension fund, this is valued at £1.77 million. There is common ground that the prima facie position is that it should be shared equally but there is a dispute as to how this should be done. There is also the possibility advanced on behalf of the husband that the pension fund could be divided differently to achieve overall fairness. I agree that such possibility exists. iii) the art. Both husband and wife have an interest in art and over the years have acquired a very great number of pieces. There has been a valuation and issues arise as to which of the pieces are owned personally and which are company assets, iv) the companies, and v) miscellaneous.

[7]The position in respect of the companies needs further division and explanation. The valuation that has been obtained of the companies has been given by a forensic accountant instructed as a jointly instructed expert (Mr H). There is a holding company (B Ltd, the holding company) which is 100% owned by the husband. It is described by Mr H in his first report as a non trading holding company. It has a wholly owned trading subsidiary (the trading company). Other relevant companies within the group are: i) a wholly owned subsidiary which does not trade but which incurs or has incurred expenses on behalf of the group, ii) a wholly owned subsidiary incorporated in the USA (the American company) which does not trade but owns a property in Palm Springs and thus incurs expenses in maintaining this property, iii) a company incorporated in Uganda (the Ugandan company). 70% of the shares in this company are owned by the holding company and the remaining shares are shown in its memorandum as being owned by a Miss O. This company owns property in Uganda, as yet it has not traded but the husband gave oral evidence that the intention was that this company would trade in African art and that the property owned by it would be transferred to a charitable company, and iv) some dormant companies which are wholly owned subsidiaries of the holding company.

[8]As I have already mentioned over the years the parties have bought a considerable amount of art. In recent years the husband has been responsible for buying an enormous amount of African art. It is common ground that all of the African art is company property of B Ltd (the holding company) and that much of the other art is also company property of B Ltd. It is shown in its balance sheet as part of its fixed assets. However the remainder of the other art is owned by the husband and wife. The source of the moneys used to buy all of the art has been the husband's business but some of it has been bought from his remuneration and dividend income. The volume of the art and issues relating to the African art have added to the difficulties and the antagonism between the parties.

[9]The group of companies therefore owns assets which can be divided in the following way, namely: i) the holding company which owns a number of assets in addition to the shares in its subsidiaries, which include the art, the foundry used by the trading company and any share in the matrimonial home, ii) a subsidiary trading company, and iii) other subsidiaries which own property but do not trade.

[10]The husband's interest in the companies is as the 100% shareholder of the holding company (B Ltd) and as an officer of that and other companies. The corporate structure and which company owns what are clearly important in connection with issues relating to the net value of the husband's shares in the holding company and the ability of the companies to pay moneys to the husband as dividend or salary or otherwise.

[11]For example it seems to me that it needs to be remembered that: i) a sale of the shares of the holding company at present involves finding a purchaser willing to buy a company tha t owns a trading subsidiary, a very large quantity of African art, some other art, the American company, a 70% share in the Ugandan company and (on my findings) a beneficial interest in the matrimonial home, ii) such a purchaser is unlikely to be found (indeed this is now accepted) and therefore there is a need to consider the extraction or sale of non trading assets, iii) a sale of assets of the holding company (whether the trading subsidiary, other subsidiaries, or its other assets (e.g. property and art) would produce cash in the hands of the holding company and not the husband, and therefore there are further steps that have to be taken before the husband can receive such moneys as a shareholder or officer of the companies after the deduction of relevant taxes, and iv) these points clearly give rise to company law issues and tax questions (e.g. what are the tax consequences of the steps that are planned, or are possibilities, in respect of the extraction or sale of non trading assets and the sale of the trading business, and what are the distributable profits). Lifestyle during the marriage

[12]After the early years when the husband was developing his business it is common ground that the parties had a comfortable lifestyle and they had no money worries. The reason for this was the success of the husband's business activities.

[13]As is not uncommon when a husband, or a husband and wife, own a private company, over the years they have charged much of their expenditure to the companies and this has been allocated within the books and records of the companies between personal and business expenditure. The husband has had a loan account to which personal expenditure has been posted and this has been repaid from time to time from remuneration and dividend. For a number of years the company has had its offices in the basement of the matrimonial home and as the wife explained to me she would regularly obtain reimbursement of expenses she had incurred by going down to see a member of its staff. This would be posted and recorded in the companies' books as a business or personal expense. If the latter it would be posted to the husband's loan account. The designation was that of the companies' bookkeeper (together with the husband and in accordance with the information given by the wife in respect of expenditure she had incurred) and was ultimately reflected in the audited accounts.

[14]Both parties benefited from entertainment and travel charged to the companies and from using the property in Palm Springs owned by the American company for holidays. This was also used as an office but is an attractive house in a compound where there are swimming pools and tennis courts. It sounds like a lovely holiday home rather than an office although I fully accept that it was used as an office as well as a home. Certainly the family have enjoyed holidays there.

[15]The attribution of expenses between business entertaining and personal expenditure has naturally been considered by the Inland Revenue and apart from some relatively small challenges accepted by them. Mr H confirmed (as in my view is common knowledge) that the Revenue would be interested in checking such matters to ensure that remuneration was properly recorded and tax was paid on it.

[16]The parties also had a joint bank account. The wife used this to meet expenses. The husband did not draw from it. It was kept in overdraft and when that approached the agreed overdraft limit the wife would tell the husband and the husband would arrange for the transfer of funds into that account. The husband told the wife, and she accepted, that the overdraft arrangement was a sensible one for tax purposes.

[17]Although a long one, and traditional in the way I have described, the evidence of both the husband and the wife shows that their marriage was not a happy one or that it became unhappy. It also showed that there is now a very considerable amount of personal hostility and antagonism between them.

[18]The wife described herself as being neglected but said that that was not her choice and she thought of her, the husband and t he children as a family pointing to Sunday lunches and holidays together. It was however common ground that the husband was out most nights very often at the local pub. The wife said that he returned to the home to sleep. As I understood the accounts of the wife and the husband, they focused on the later years of the marriage but reflected a lifestyle that had grown up over the years and had existed for a long time. The lifestyle described was of two people living very separate lives under the same roof.

[19]The husband admits to, and in his evidence asserted in a manner designed to be hurtful, if not boastful, of having had affairs throughout the 33 years of the marriage. The wife said that she was not aware that he had regularly been unfaithful to her. She said that she thought that he had had dalliances. I do not accept that evidence of the wife. In my judgment the wife was aware either throughout and if not for a long time during the marriage the husband had been unfaithful to her. What I accept however is that she did not know, and did not want to know, the detail of the husband's relationships with other women over the years. Rather she focused on the family and accepted (and resigned herself to the fact) that she had a marriage in which she and her husband lived largely separate lives and in which the husband was unfaithful to her.

[20]In large part I base this conclusion on the wife's assertion in the different context of the secret examination that she made of the books and records of the companies that she knew her husband very well. I accept that. Having seen both her and the husband give evidence to my mind it is simply incredible that she was not aware that he had regularly been unfaithful to her. I however accept that over the years, as part of her defence mechanisms, she has come to convince herself that as she said he was only having dalliances (or casual affairs) and notwithstanding them at heart he remained committed to her and his children.

[21]In my judgment a brief acquaintance with the husband in the witness box demonstrates that the prospect that he would limit himself to enjoying only male company (with a group the wife described as divorced rather than family men) or to platonic relationships or dalliances with other women is unrealistic. The trigger to the separation

[22]This was the discovery by the wife of the husband's instructions concerning his will. She overheard a discussion between the husband and his solicitor confirming that all she would have would be the house and that the children would only share the remainder of the husband's estate after a number of substantial gifts to a number of people many of whom she had not heard of.

[23]I accept that this caused the wife great shock and upset. As a result of it and because, as she said, she knew her husband very well and if she did not take this course she would have enormous difficulty in finding out what had been going on and what the present position was, she carried out in secret an extensive examination of the records of the companies. These were kept in the offices in the basement of the matrimonial home. They were not locked or hidden away.

[24]In my view the wife's prediction of the likely reaction of her husband has been confirmed by events and his attitude during these proceedings.

[25]I accept that the wife was deeply upset and put into an emotional turmoil by this discovery and her further discoveries whilst over a period of two to three months she visited her husband's offices in the small hours of the morning going through and copying documents. This resulted in a great number of Hildebrand documents. It also resulted in the wife suffering an illness which caused her to lose much of her hair.

[26]A major factor in the distress and emotional turmoil suffered by the wife was her discovery of the husband's relationship with Miss O and the facts that(a) he intended to leave Miss O substantial sums of money,

(b) he had provided her with a flat in London,

(d) he had paid course fees for her and

(e) he had bought property in Uganda which the wife reasonably thought was for Miss O and her family. Miss O is only a little older than the twin daughters of the marriage. The wife also discovered that the husband had about 12 years ago been very generous to another young woman of Russian origin. That generosity included the payment of course fees. I record that I gained the clear impression from the husband's evidence that a means he employed to obtain sex was to offer to fund courses being taken by young women he met when out in the evenings. Also, in this context, and not to his credit he said that some women required £5 others £500.

[27]The wife also discovered that members of the companies' staff with whom she had had a long, and she thought good, relationship were aware of the husband's financial commitments to these, and perhaps other women, and had kept this from her. She also discovered that on occasion to ensure that she did not see letters the husband had them sent to the home of his office manager and PA. This also upset the wife. The reactions to the separation and divorce and general comments on the evidence and stance of the husband and the wife

[28]In my judgment, apart from her evidence as to her knowledge of the husband's unfaithfulness, the wife gave her evidence in a truthful and open way. For example, she did not seek to hide her views about Miss O.

[29]The basis upon which the wife has conducted her long marriage, namely that the husband at heart had a commitment to her and the children has in her mind been shattered. Notwithstanding this she made attempts to keep the marriage alive but these failed.

[30]She remains very upset and she is antagonistic towards the husband. The daughters take a similar stance to their mother.

[31]The problems are certainly not helped by the fact that the husband still sleeps at the matrimonial home and works in the basement. There are allegations of recent very acrimonious exchanges between husband and wife and between the husband and one of his daughters. I am not in a position to decide the disputes relating to these exchanges or the period of time over which the relationship between the husband and his now adult daughters has been so very poor. But I mention them to demonstrate the tension and acrimony that sadly exists in this family between the husband on one side and the wife and daughters on the other.

[32]I also record that the evidence demonstrated that the husband had very poor, if not in effect non existent, relationships with his mother and sister.

[33]There is no assertion of any physical violence.

[34]The wife demonstrated that she is an intelligent and resourceful woman who would be capable of giving as good as she got in an argument with the husband on all levels and thus for example of advancing and defending her interests in such arguments. I did not hear any evidence from the daughters but they are well educated, in good jobs and all the indications are that they are intelligent and independent adults who are now able to look after themselves. One of the very acrimonious and unpleasant assertions about a conversation between the husband and the wife related to the terms in which the husband was asserted to have described the fiancé one of his daughters.

[35]The husband was a less impressive witness than the wife and I do not accept a number of points in his evidence. However I accept his description of the nature of his business. This is important because it goes to its marketability and value.

[36]In his evidence, and by his conduct in the course of the proceedings, the husband has demonstrated bad sides of his character including unreasonableness, chauvinism, vindictiveness, antagonism, obduracy, rudeness and hostility.

[37]During his evidence he also demonstrated a caring side to his nature because he was clearly and genuinely upset when describing the plight of members of Miss O's family who suffer, or have suffered from, AIDs and of children who are orphaned as a result of their parents' deaths from this condition. This was in marked contrast to his hostility and callousness when referring to his wife and children, although it seemed to me that this too had an emotional base. Indeed it seemed to me that he si an emotional man and volatile man.

[38]In my judgment his decision to sue his nephew concerning the removal of a fireplace from the house in the USA was unreasonable and the product of his anger and vindictiveness. In evidence he accepted that these proceedings did not make commercial sense. I am pleased that his counsel in response to my question indicated on instructions that the husband would end that litigation. I hope that he has done so. The revocation of his gift of motorcars to his daughters is also, I accept, the product of his anger and vindictiveness towards members of his family.

[39]I do not accept the husband's evidence that: i) he had nothing to do with a letter dated 26 November 2006 which was left in the house and which he referred to as the Keystone Cops letter because, as I understood it, the letter contained assertions as to a bank account that made no sense. But his solicitors (no doubt on instructions) made an equivalent assertion. The letter purported to be from a third party and raised points against the wife. I accept the argument advanced on behalf of the wife that the husband either wrote, or was behind, this letter, and ii) he had never mentioned taking on a partner in the business. However th e possibility that he might be able to take on a partner was not pursued, or advanced, on behalf of the wife as a relevant point in respect of the value to be given to the business or the perpetuation of its income stream. This was therefore a credibility point.

[40]I was not convinced by, and do not accept, the husband's oral evidence that the intention was, and as I understood it always had been, that the ho use bought by the Ugandan company was to be used for charitable purposes. So far as I am aware this had not been raised before the husband's oral evidence and it seems to me that if that had been the intention it is far more likely that a charity would have been set up in the first place. In my view correctly, the assets of the Ugandan company have been treated as if that company was a wholly owned subsidiary and the beneficial owner of all its assets.

[41]I also find that the husband's assertion that his failure to disclose his purchase of £36,000 worth of Standard Life shares an d a flat in Uganda was because he did not know he had to disclose acquisitions after what he described as his "pink slip", was untrue.

[42]As I think will be apparent from the findings I have made I accept the more general point that the husband's character as demonstrated in his behaviour taken alone and together with the antagonism and hostility that exist between the husband and the wife has the result that future dealings between them, in particular in relation to money, are likely to give rise to dispute, at least a continuation of the present hostility and antagonism and some unreasonable behaviour by the husband. As in my judgment the wife has known for many years the husband is not an easy man and when crossed or upset it is in character for him to behave in an aggressive and at times unreasonable way.

[43]On behalf of the wife criticism was levelled at the husband in respect of the manner in which he dealt with the production of material to Mr H. This had two purposes, first as part of the argument that there were good grounds for a clean break and secondly as a forerunner of arguments relating to costs.

[44]I accept that there are strong arguments based on the antagonism between the parties and the character and behaviour of the husband (taken together and separately) in favour of a clean break. Indeed, I pause to record that both the husband and the wife seek such a result.

[45]Given that, and the fact that the husband also raised arguments relating to litigation conduct relevant to issues concerning costs I have concluded that it is not appropriate for me at this stage to make findings in respect of the rival contentions on the litigation conduct of the parties. However in this context I record that: i) it cannot be disputed that the husband has written to Mr H using abusive language, ii) Mr H in some of his letters, and in his oral evidence lends, support to submissions made on behalf of the wife and I accept that in his oral evidence he said that it was his view the husband set out to make things as difficult as possible at every turn, and gave evidence to the effect that he was getting nothing meaningful, and was not receiving cooperation, in response to his requests for information for material to enable the performance of the business to be measured. But Mr H's reports indicate that he had received some up-to-date information, and in my view this evidence of Mr H, and his assertions as to the lack of co-operation from the husband, may therefore merit further investigation as to, for example, what he was asked to provide, his responses and the orders that were (or could have been) sought for the production of defined material, iii) Mr H in my view correctly described part of his instructions as being to examine the following issues(a) allegations of the diversion of company funds to meet personal expenditure of the husband or expenditure on others, and

(b) expenditure on company credit cards by the husband's secretary. Clearly these were instructions emanating from the wife on the basis that she wished Mr H to investigate and report as to whether there had been conduct that could be criticised with a view to increasing her award (for example on the basis that it was dishonest, unlawful, improper or reckless conduct, or conduct that as a matter of fairness should found an adjustment or add back to the assets). It is also the case that it was obvious (given for example the Hildebrand documents) that this investigation would require the production of a large amount of paperwork and would be likely to be burdensome to, and to annoy, the husband. It is at present not clear to me whether this investigation was instigated on behalf of the wife with a view to determining whether assets and income of the company had been diverted in the sense that they had never been recorded in the company's books and records and were held elsewhere. If so they have not produced any evidence of such conduct. If the investigations were directed to the way in which earnings and payments shown in the records of the company were applied, and thus for example to show that company moneys had been diverted in the sense that disguised drawings had been made by, for example, false entries being made which showed purchases of art at over the cost price, again they have as I understand it produced no evidence of this. Further if that was their purpose their cost effectiveness may be an issue because the earnings of the company would not have been in dispute. I am unclear what the purpose of the investigation of expenditure by the husband's secretary on company credit cards was. Again as I understand it that has not produced anything relied on by the wife. Therefore potentially there are costs issues relating to the purposes and results of this exercise. Further there is an issue as to whether these investigations provide a reasonable reason or excuse for the annoyance and behaviour of the husband, or for some of it, when conducting these proceedings and dealing with Mr H, and iv) an issue also arose as to whether the art should be valued or whether its cost or book cost should be taken. As expressed by Mr H his investigations were not to establish the cost of the art, but part of those investigations may have served, or been relevant to, this purpose and thus to a point raised and advanced by the husband as to the value to be given to the African art (as to this I pause to comment that I was unclear whether he was asserting that it should be brought in at book value plus an uplift or at cost). The wife's position, as I understand it, was that there had to be a valuation of the art. A product of the acrimony that exists

[46]To my mind this places an obligation on the advisers of the parties to take a dispassionate and cool stance and thereby to focus on the essential points and seek to avoid their clients and themselves becoming embroiled in tit of tat allegations based on deep rooted personal hostility within the family.

[47]I pause to add that: i) it is not only in this type of litigation that deep seated acrimony and hostility exists. It can also exist for example in partnership and company disputes. In those situations it may be easier to focus on the commercial and core issues relating to money but in my view all too often when asserting correctly in ancillary relief proceedings that the dispute between spouses is about money practitioners in the field of ancillary relief fail to remind themselves of this in the way in which they conduct ancillary relief proceedings and correspondence, and ii) I accept that at times it is easier to state the goal of concentrating on the financial issues than it is to achieve it.

[48]Essential to an approach that focuses on the core financial issues is of course an identification of the points of law and fact that need to be resolved to enable the court to carry out the section 25 exercise. The fact that the statutory discretion is a wide one to be conducted having regard to all the relevant circumstances to achieve fairness without disproportionate expense does not mean that the establishment of ingredients, or factors, to be taken into account when exercising the statutory discretion should be approached in a generalised and superficial way. In my experience, sadly this happens all too often and leads to ancillary relief cases being presented in a way that: i) is exaggerated and plays to the gallery of the upset client rather than the court, ii) pays insufficient attention to the identification of the essential underlying issues, and iii) concentrates on the parties' primary cases and pays insufficient (and often no) attention to the range of alternatives that a court may have to consider in the exercise of its statutory discretion thereby leaving the court short of relevant information to take an alternative course if it is not content that either of the rival contentions of the parties produces a fair overall result.

[49]In this context, and that of the criticism I make of the conduct of this case, I acknowledge that it may be that matters I criticise are the product of instructions that run counter to advice given. Further I acknowledge the benefit of hindsight and accept that matters I criticise in respect of the approach to the valuation o f, and issues concerning, the companies accord with an approach that is quite widely adopted by practitioners in the field. As appears below in my view this approach merits a rethink to ensure that the commercial realities, and the company and tax issues, that inevitably arise in a case concerning a private company are properly taken into account and presented to the court. The beneficial ownership of the matrimonial home

[50]The holding company has been joined as a party because of the dispute as to whether it has a beneficial interest in the property. Sensibly, it has not had separate representation even though theoretically there is the potential for conflict between it and the husband and wife.

[51]To my mind disappointingly when the hearing began and notwithstanding the production of 12 bundles, a core bundle and an additional bundle produced by the husband's solicitors the following were not included in those bundles and/or the written submissions of counsel: i) the conveyancing documents, ii) any recognition of the point that there was a need to check whether there was an express declaration of trust either in those documents or connected with them, which was all the more surprising given the point that it seems that such a trust was declared in respect of the previous matrimonial home and the holding company has entered in its accounts for many years that it has an investment or interest in the matrimonial home, iii) any analysis or submission (or even reference) to the relevant principles of law relating to implied, resulting or constructive trusts, or on the wife's case the inference of a loan, and iv) any analysis by reference to those principles, or otherwise, of the manner in which the cost of the property and the extensive works of repair and renovation were funded.

[52]Points (iii) and (iv) effectively subsisted to the end of submissions notwithstanding what I thought were clear indications from me that in my view argument based on the relevant law and the analysis of the facts relied on was necessary.

[53]Correspondence produced on the first day of the hearing (although as I understand it this was available to both sides for some time prior to that date – certainly if the wife's side had asked for it they would have been entitled to it) indicated that the husband and wife took a new long lease of the property and so there was no transfer of a long lease. That lease was produced during the hearing as a result of a request made of the Land Registry, after I had asked where the relevant transfer was, and was not told that the parties were the original tenants and therefore there was no transfer. Unsurprisingly the lease did not contain any declaration of trust.

[54]I accept, and acknowledged during the hearing, that it was probably not likely that the relevant conveyancing, or other documents, would contain a binding declaration of trust. But in my view proper preparation by both sides should have included a check of this basic starting point.

[55]The correspondence produced on the first day of the hearing and the lease (produced later) show that: i) the long lease of the matrimonial home was granted in March 1989 to the husband and the wife, ii) contracts for that lease had been exchanged in February 1988, at a time when the property needed substantial repairs and renovation, iii) after exchange of contracts the husband and wife were given a licence to enter the property and to carry out the repair and renovation, iv) prior to exchange of contracts bridging finance had been arranged with Lloyds Bank to fund the deposit and the balance due on completion (the letter offering this refers to the basement being sold after renovation), and v) on 15 July 1988 the previous matrimonial home was sold and the completion statement shows that the net proceeds of sale were divided as follows 30/225 to the holding company (£49,574.06) and 195/225 to the husband and wife (£322,231.42).

[56]This accords with the limited evidence contained in the parties' affidavits and replies to questionnaire.

[57]Thus there is no evidence as to how the net proceeds of sale of the previous matrimonial home were applied save in the sense that it was effective common ground that all of it was applied towards the cost of buying, renovating and repairing the property. Thus for example it has not been shown whether it was applied in reducing bridging finance or in paying builders.

[58]The completion statement in respect of the grant of the long lease to the husband and wife shows that the purchase price was £464,100 and that a deposit of £185,640 (presumably raised by the bridging finance) was paid on exchange and a balance (taking account of other expenditure relating to the licence and rent) of £279,485 was payable. This together with costs and stamp duty meant that after deducting a mortgage of £142,000 a balance of £142,783 was due.

[59]I did not hear and was not shown evidence as to how that balance was funded, but it was common ground that from completion of the purchase only the mortgage of £142,000 from Lloyds Bank was charged on the property. Thus it seems that the bridging finance was repaid at this time, or earlier. But I do not know how this was done.

[60]The completion statements I was referred to show that: i) the total cost of the property was £470,423 (financed by deposit of £185,640, mortgage of £142,000 and balance on completion of £142,783), and ii) the net proceeds of sale of the previous matrimonial home totalled £371,805 which together with the mortgage of £142,000 totals £513,805 and therefore from those moneys £43,382 was left for the repairs and renovations.

[61]It was common ground that the works of repair and renovation were extensive. The information before me as to the costs of such works and whether that cost exceeded £43,382 and, if so, how it was funded and indeed more generally as to how the works were funded is limited. Indeed the only assistance on this to which I was referred is contained in some working papers attached to the husband's replies to the wife's schedule of deficiencies (the property working papers). In that reply (having earlier stated that he would explain why he asserted that the holding company had a 25% interest in the property) the husband set out his case.

[62]The wife's written evidence on the point which followed this reply is limited. She asserts that she never agreed to the holding company owning 25% of the property and refers to the property being bought by the two of them and the financing coming from the sale of their earlier home, bridging finance and the mortgage.

[63]But, and importantly, she does not dispute that company moneys were used to contribute to its purchase, repair and renovation. Indeed (and in my view correctly) it was accepted by her counsel in argument that company moneys had been so used. He accepted in his written argument that the amount was that shown in the property working papers, namely £89,606.81. Also the wife did not assert that she did not know either(a) that the company had a beneficial interest in the previous matrimonial home, or

(b) that the company had provided funds towards the cost of buying repairing and renovating the property. In my view the correspondence relied on by the wife shows that she knew point (a) and that moneys were due to the company from the sale of the previous home. In my judgment the lifestyle of the couple in which company moneys were expended and then allocated in its books and records had the result that the wife knew that such moneys, and other moneys, were applied by the company in and towards the purchase repair, and renovation of the property. But I accept that that lifestyle does not establish that she knew how those payments had been treated and allocated by the company.

[64]A recent case on implied constructive and resulting trusts is Oxley v Hiscock

[2004] 3 WLR 715

. It sets out the principles and approach and refers to earlier authority. It relates to a dispute between a husband and wife and did not involve a company. Here an argument as to the respective beneficial interests of the husband and wife is redundant given the common ground that prima facie under s. 25 the matrimonial assets fall to be dived equally and the absence of any third party claimant apart for the company. Thus the personal contributions to the repairs and renovation asserted by them both were not the basis of any argument as to their respective beneficial interests (or that of the company).

[65]The issue that was argued was whether the company had a beneficial interest. There was little no argument as to what the size of that beneficial interest was, or on the wife's part what it would be if contrary to her main argument there was one. In Oxley v Hiscock the Court of Appeal decided that in the absence of an express declaration of trust the court has to assess the evidence(1) to see what agreement was made, or can be inferred, that there was a common intention that the company was to have a beneficial interest and then, if there was such a common intention

(2) the size of that interest.

[66]At stage(1) a common intention is readily inferred from the fact that each person has made a financial contribution. At stage

(2) in Oxley v Hiscock the Court of Appeal held that in the absence of agreement the court could look at the whole course of dealing and was not required to find that the property was held on resulting trust in proportion to the respective financial contributions to the purchase price. As a result the court could (and did) find that the property was held on constructive trust in different shares having regard to those contributions and the course of dealing between the parties.

[67]The time honoured principle relating to resulting trust is that the property results to the providers of the purchase price (see Snell Principles of Equity 31 st edition 23.03/04).

[68]This is not the place to discuss differences between implied, constructive and resulting trusts and I use the terms constructive and resulting trusts to differentiate between conclusions based on financial contribution alone (resulting) and on that and wider considerations (constructive).

[69]Here neither side advanced a case or argument: i) based on discussion and agreement between them, or ii) based on the course of dealing over the years (as to which I was not directed to any evidence as to how outgoings on the property have been met. But t he common ground or assumption was that no rent had been paid), or iii) that the company should not be treated as a separate legal person, or iv) that company moneys had been misapplied or misappropriated by making payments towards the purchase, repair and renovation of the property.

[70]As I have mentioned, the wife's case was that she had never agreed to the company having the 25% interest asserted by the husband in his Form E or any beneficial interest and that the court should infer that the moneys paid by the company towards the purchase were provided by way of loan. As I understood it I was to infer a loan that was interest free or a loan on the basis that interest (and capital) was (or could be) forgiven, waived or written off because the company would occupy, or had occupied, the basement rent free.

[71]The case on inference of loan was built on the absence of discussion and agreement, parts of the correspondence in 2004 concerning the husband's will whic h refer to the property being jointly owned with the wife, and advice from the solicitors and accountants acting around the time of purchase and renovation not to create an equitable interest in favour of the company. The existence and underlying point concerning that advice is encapsulated in the following terms in a letter from the solicitors dated 3 March 1989:

" The accountants share my view that it would be unwise to continue the company's involvement unless there was no other alternative. The reason for this is that any capital gain from a sale will be tax- free with the property in your personal names as your principal and private residence. Any capital gain accruing to the company will be subject to corporation tax. I shall assume that there will be no continued involvement by your company unless you advise me otherwise "

[72]It was said that as the solicitor was not advised otherwise, the advice must have been followed and therefore it should be found that the husband and wife had no common intention that the company should have a beneficial interest and proper inference to be drawn was that there was a loan. The parties to the loan and thus the relevant contract of loan were not expressly identified. My understanding was that what was being asserted was that I should infer a loan from the company to the two of them, rather than just to the husband (although it was argued that as between the two of them the husband should now discharge it).

[73]At this time (i.e. 1988 and 1989) it was effective common ground that decisions relating to financial matters such as the manner in which the company would assist in the purchase and renovation of the property were by common accord left to the husband. Thus the point that the wife did not advance any assertion of a loan to her and the husband (or to the husband) being discussed or agreed was not fatal. But this is a recognition by her of the point that at that time she was understandably content that the husband was the directing mind on such issues, and thus on how expenditure incurred by the company was to be allocated and treated and the result in law and equity of this as between the company on the one side and her husband and herself on the other.

[74]A major problem that lies in the way of the wife's case flows from the property working papers (which she accepts show that company moneys were applied towards the purchase and renovation) and the point that in line with them the company has been shown in its accounts as having an investment or interest in the property. Although no doubt she took little or no active part in the drawing of the company accounts the wife was for a period an officer (the secretary) of the company.

[75]Thus the wife is in the difficult position of accepting the authenticity of the property working papers but asserting that the workings in them, as reflected in the accounts, did no t reflect the intention of the persons who compiled them and agreed to them at the time, who included the husband. No suggestion was made as to why this should not have been the case and thus why the property working papers and the accounts did not accurately reflect the intentions of such persons and thus the husband at the time. Indeed it is difficult to see why this would be the case.

[76]The husband's case (which he put in very strong language to Mr H who had confirmed that his investigations demonstrated that company moneys had been used to fund the purchase and works on the property) was that at the time of purchase, renovation and repair he was not involved in a divorce and there was no point 1988/89 in him drawing up any formal agreement between himself and himself as the company and thereby incurring legal expenses and stamp duty.

[77]The husband's case reflects and asserts the point made in the solicitor's letter that at the time there was financially no alternative. He did not put his case on the basis that he had any recollection of then considering the tax implications of a loan, its repayment through dividend or salary or the effect on the principal private residence exemption if the company occupied the basement. Also no mention was made by either party of the reasons underlying the abandonment of the intention to sell the basement included in the letter relating to the bridging finance, or when it was decided that the company would occupy it.

[78]Rather the husband's case was based on the shortage of money at the time (which was not disputed) and the property working papers and company accounts which he asserts show that the solution arrived at was effectively to continue the position as it had existed in respect of the previous matrimonial home of the company having a 30/225 share and thus contributing that fraction of the costs of purchase, renovation and repair.

[79]The property working papers indicate that for reasons that were not explained the company made no contribution to the rent from February 1988 to February 1989 and that on that basis the company paid 30/225 of the total cost of purchase (and thus £62,676.40). I do not follow how the sum of £140,047.15 for "expenditure on the house" in 1989 contained in the property working papers is made up, but it seems that it must include moneys paid by the husband and wife or other moneys spent by the company. But that sum and the total of £201,978.04 shown therein for such expenditure was not challenged. Of that sum 30/225 was attributed to the company (namely £26,930.40). The total so attributed and carried into the accounts from the property working papers was therefore £89,606.80 (i.e. £62,676.40 + 26,930.40).

[80]In his first report Mr H records that the interest in the property was re- valued in the accounts to £425,000 with a base cost of £126,202. I was not shown where that base cost came from. The property working papers however indicate that the balance over £89,606.80 is likely to have been calculated in the same way.

[81]In his reply to the schedule of deficiencies the husband sought to argue that the company's share was a percentage of the total costs less the mortgage (the equity). I reject that. There is no evidence that the company has paid, or accepts or ever accepted liability, under the mortgage. Rather the calculations in the property working papers are on the basis that the mortgage is part of the financial contribution of the husband and wife.

[82]So the company working papers and accounts support a conclusion that by reference to the contributions to its purchase, repair and renovation the property was held on resulting trust as to 30/225 (13.33%) for the company and as to 195/225 (86.67%) for the husband and wife on the basis that the mortgage is part of their financial contribution. It would in my view follow from that approach that on a sale the mortgage would as between the beneficial owners be paid from share of the husband and wife.

[83]A letter from the company's accountant dated 27 March 1992 refers to a proposed sale of a further percentage interest in the property to the company to clear the husband's overdrawn loan account. This supports the conclusion that the intention and view of the husband at the time was that company should acquire and had acquired a beneficial interest and that at this time there was a continuing shortage of available funds.

[84]I reject the wife's argument that I should infer a loan. I do not accept that this follows as a ma tter of reasonable inference or of any principle of law (and none was advanced before me) from the matters relied on and in particular the assumption of the solicitors. Rather in my view: i) given the agreed shortage of funds and the company's beneficial interest in the previous home, the natural and obvious inference in the absence of an express agreement of loan is that the company made, or was treated as having made, its financial contribution to the purchase on the basis that it was a contribution to the cost of purchase repair and renovation and that it would have a beneficial interest in the property, ii) this is supported by the property working papers and the accounts and in my view there is nothing to support a conclusion that they do not represent the thinking of their authors at the time, iii) it also flows naturally from the points that the tax dis-advantage referred to by the solicitors was a matter for the future and would arise when funds were available to meet it, whereas payment in respect of a loan would give rise to immediate funding problems, iv) as the company could not make a gift of the moneys to the husband and wife the real choice in the absence of any agreement relating to a loan or remuneration is between a misapplication of company moneys and a an investment of them in the property. The latter is the position supported by the property working papers and the accounts, and if the former was the case arguments that by reason of the breach of fiduciary duty involved the company had a beneficial interest in the property could arise, and v) the wife was content to leave decisions as to how payments by the company were to be treated to the husband and at that time either had no objection to, or would have had no objection to, the situation continuing that the company had the same (or an equivalent) beneficial interest in the home. She plainly had no objection to the company occupying the basement.

[85]In my view the description of ownership in the correspondence relating the husband's will does not found a conclusion that the husband has advanced the claim for the purposes of these proceedings. Again that runs counter to the property working papers and the accounts and in my view it is understandable why the property would be so referred to in that correspondence on the husband's and the company's case.

[86]So in my judgment the inference to be drawn from the evidence is that the common intention of the husband, the wife and the company was that the company should have an interest in the property, or that was the common intention of the husband and the company and the wife knew that the company had provided funds and was content to leave the basis on which this was done to the husband and should in equity abide by the decisions he made.

[87]In my judgment the evidence and argument does not identify a course of conduct that founds a conclusion that the beneficial interests of the company on the one hand and the husband and wife on the other should be based on anything other than their financial contributions to the purchase, repair and renovation of the property.

[88]I therefore conclude that the property is held as to 13.33% for the company on the basis that as between it and the husband and wife and the company the husband and wife are responsible for the discharge of the existing mortgage debt. General points on the companies

[89]Given the level of expenditure and issues in this case I revisit a decision of my own ( AvA

[2006] 2 FLR 115

) in which I made some general comments on the approach to be taken when a private company is part of the assets of a family.

[90]In AvA I advocated the need to stand back and look at the range of potential issues relating to company and other assets with the eye of a commercial as well as that of a matrimonial litigator. Given that the overall objective is to arrive at a fair result, and thus a distribution of assets that is fair, it seems to me that this is axiomatic and necessary for any proper assessment or presentation of a case.

[91]When a distribution of assets and financial orders follow the end of a marriage there can often be compelling reasons why a sale of an asset, followed by a division of the proceeds, would not be fair (e.g. the need to keep a family home for wife and children) and the fair course is to distribute the assets between the parties and to make further orders in the light of that distribution.

[92]Naturally, when assets are not sold the cross check or yardstick of equality (or percentage shares) and overall fairness of division (and of a clean break) is carried out aga inst valuations.

[93]It was submitted to me, and I of course accept, that valuations carry an element of uncertainty and, for example, this is so in respect of the valuation of a matrimonial home. However I do not accept, as was again submitted on behalf of the wife, that this example of uncertainty is equivalent to, and can be approached in the same way as, the uncertainty that exists when the shares in a private company are valued. In my view that submission is one that ignores the reality of the nature of the relevant assets and, in particular, the likelihood that in respect of such a company(a) there is no ready market, and

(b) highly competent valuers (using the same method of valuation) will reach widely different valuations. Such a variance between valuers is regularly encountered in this, and other, types of litigation and is a natural product of the effects of the elements of opinion applied by the valuers and thus of the exercise they carry out. The degree and nature of any such differences in valuation is not the same as those that can occur when there is an open market and comparables.

[94]To my mind this point, and the point that private companies are often the goose that has laid the golden eggs in the form of income and benefits through a marriage, have the consequence that when such companies are involved the "apples and pears argument" is likely to arise.

[95]Also the wish of a party and perhaps the requirement of fairness may mean that when private companies are involved one of the parties to a marriage should be permitted to continue running such a company. Thus the ability of the company to lawfully and sensibly (in both a business and general sense) pay sums of money to one or both of the parties will often arise. This will involve a consideration of the relevant company and fiscal law and an assessment of the commercial situation and thus a commercial and practical approach by persons with the relevant expertise.

[96]None of the above is new in the consideration of family and other cases. This is demonstrated by the cases I was referred to and mention in AvA , (namely Evans v Evans

[1990] 1 FLR 319

, Cowan v Cowan

[2001] 2 FLR 192

, NvN (Financial Provision: Sale of Company )

[2001] 2 FLR 69

, Wells v Wells

[2002] 2 FLR 97

, GvG (Financial Provision: Equal Division)

[2002] 2 FLR 1143

, FvF (Clean Break: Balance of Fairness )

[2003] 1 FLR 847

and Parra v Parra

[2003] 1 FLR 942

[97]I repeat that I respectfully agree with the comment of Coleridge J in NvN that the court must be creative and sensitive to achieve an orderly redistribution of wealth and that the practicalities involved in valuing, dividing up, and/or realising certain species of assets make the achievement of the White objective sometimes either impossible, or only achievable at a cost which may not overall be in the family's best interests. The other cases cited support these comments and demonstrate that difficulties arise concerning holdings in private companies.

[98]In AvA I said this:

"In an assessment of a fair division of assets under the MCA problems obviously arise in respect of "snap shot valuations"

. The greater the volatility in value, or the potential for a wide range of valuation, the greater the problem. In respect of private companies, and shareholdings therein, the difficulties and potential unfairness of a "snap shot valuation" clearly arise and can do so in a stark form. Such valuations turn in large part upon opinions as to prospects, and what multiple and discount should be used in the valuation method adopted. They suffer from the background difficulty that there is generally no open market for the shares. This can regularly give rise to large differences between highly reputable valuers even when they are using the same methodology and these can be compounded by differing views on prospects and methodology. All this, and other problems, flow from the nature of the asset. In general terms it seems to me that these points can easily give rise to the difficulty in ancillary relief proceedings that neither of the clean break solutions urged by both sides by reference to the valuations they advance (or a clean break solution somewhere in the middle) produce a result that the court considers to be fair in all circumstances. That in turn can give rise to the problem that the court is not sufficiently informed as to the possible alternatives to order what it thinks might be the fairest solution and can be left in a position of having to adopt an approach dictated by the solutions advocated by the parties which the court thinks may not include the best result. In making these general remarks I am very conscious of the need to seek to do broad justice in ancillary relief proceedings and to minimise expense, and thus of the need to avoid ancillary relief proceedings being converted into company litigation. I therefore make these general comments on the basis that in my view they should be part of the process of identifying the issues and what should be provided to the court to enable it to perform its task under the MCA. If this is done hopefully costs will be avoided or at least the considerable expense of valuation will be justified."

[99]The Matrimonial Causes Act 1973 (the MCA) requires the court to consider whether there should be a clean break (see s. 25A). There are very obvious private, and public policy, advantages in this. These are, for example, recognised and identified by the House of Lords in McFarlane v McFarlane

[2006] 2 WLR 1283

. However it seems to me clear that White and McFarlane demonstrate and confirm that as a matter of statutory construction and application the unfairness that could result from a clean break needs careful consideration. Further in my view when there is no ready market for an asset which fairness and practicality dictates should not be sold, or sold immediately, the uncertainties of valuation and the existence of a wide range of valuation may (I emphasis may) render a clean break that is based on valuations alone unfair, or too uncertain, to be classified as fair. A private company is a classic example of such an asset.

[100]Another underlying and basic point in respect of the s. 25 exercise under the MCA is that the order is one made by the court and the parties cannot dictate the result by agreement albeit that an agreement between the parties can carry considerable weight (see for example Edgar v Edgar

(1981) 2 FLR 19

, XvX (Y and Z intervening )

[2002] 1 FLR 508

[101]So an agreement or common ground between the parties that there should be a clean break has great weight. But if it is put by them on widely different bases that weight reduces if the court thinks that neither of the proposed primary solutions produces a fair result and thus some alternative solution is necessary (which may or may not involve a clean break).

[102]In cases involving private companies, notwithstanding the differences between divorcing parties and the desirability of a clean break the commercial reality may often be that a commercial /company solution can be found that would promote a result that might be considered to be fairer than a clean break based on valuations by, for example, allowing one party to continue to operate the company without any disruptive interference and the other to enjoy income benefits (directly or indirectly by way of periodical payments) and a deferred clean break on a sale.

[103]Thus it seems to me that parties and their advisers urging a clean break by reference to valuations of a private company as their primary case will generally, if not always, owe a duty (and in any event would be well advised) to consider commercial alternatives. This is particularly the case when there is, or is likely to be, a significant dispute or a significant uncertainty or a wide bracket on valuation and/or the ability to raise and pay a capital sum without unduly jeopardising or burdening the business or the paying party.

[104]I therefore repeat my urging of those involved in ancillary relief cases involving private companies not to confine themselves to an approach based solely on valuation and liquidity (i.e. the ability to raise money to meet a lump sum payment) but to investigate and consider commercial alternatives and periodical payments. In my view it should be practical for this to be done without undue expense in particular with co-operation and the formulation of the correct type of questions. This is particularly so when it is remembered that rough and preliminary valuations on an earnings basis should be possible without incurring significant accountancy fees. The same point can be made in respect of the identification and preliminary views on commercial options if someone experienced in those matters and the fiscal consequences of various alternatives is consulted. In the case of an accountant it is important that he or she is instructed to consider and advise or report on the relevant issues. If the family law specialists instructed do not have the relevant expertise to identify such issues (or to ensure that they have been identified by the accountants) there are there are a number of lawyers who do and whose advice to my mind sadly is not sought regularly enough in ancillary relief proceedings. The position here , preliminary points

[105]In AvA I was concerned with a minority interest. Here the complications relating to that do not arise because the husband has an effective 100% interest in the holding company and its subsidiaries.

[106]Taking the mixed commercial and matrimonial litigation course I advocate it seems to me that it would have been, or should have been, apparent to the representatives of both parties that it would be likely that: i) The following information would be required in respect of the companies: a) a brief history of the companies and the benefits derived from them during the marriage, b) a description of the business, c) the audited accounts for a reasonable period, say the last five sets of audited accounts, d) so far as they exist up to date accounts in the form produced to, or as they have normally been produced to, the auditors, e) up to date management accounts if they exist, or if not, an up to date assessment by the husband backed by appropriate records of the current position of the companies, f) an up to date account from the husband of the prospects of the companies, again accompanied by appropriate records, g) an up to date account from the husband of his plans for and in respect of the companies in the short medium and long term, again accompanied by appropriate records, and h) whether or not those plans include a sale, the identity of persons and companies who might be interested in buying the companies or parts of their business. ii) The following issues or points would be, or would be likely to be, relevant as they are points that generally arise in respect of a private company:(a) is there a market for the shares or any of the assets of the companies,

(b) if the shares of any of the companies, or the assets of any of the companies, were going to be sold what would be the strategy that should be adopted in respect of such sales. In particular if the husband wanted to achieve the best price for a sale of his 100% interest in the holding company what would be the best course to adopt and thus for example what steps would he have to take in respect of the trading company concerning the handing over of information and as to non competition,

(c) how should the companies, and in particular the holding company, be valued, and if part of the valuation should be on an earnings basis what is the correct approach to determining the maintainable profits and what is the range of appropriate P/E ratios,

(d) how could money be raised within the relevant companies and paid out to the shareholders or directors, which is almost inevitably going to require an assessment of the distributable profits, and an assessment of the tax consequences, so that it can be calculated what would be available in the hands of the individuals,

(e) what would be the likely effects on the businesses and the companies as going concerns and their valuations if moneys were raised and paid out in the ways suggested as possibilities,

(f) whilst the companies continue to trade what, if any, corporate structures or provisions could be put in place to share benefits derived from them between husband and wife by way of dividend (if shares are transferred), or by other methods and to enable the husband to continue to have day to day control whilst at the same time protecting the wife. iii) In respect of the issues and points referred to above the following points would be likely to arise: a) there would be a limited market and uncertainty as a result thereof, b) any sale, particularly of the trading assets, would require the cooperation of the husband to achieve the best available price and that cooperation would have to relate to the period leading up to a sale and after it had taken place (and non competition covenants), c) valuation of the trading company would be likely to be on an earnings basis (or to include such a valuation) and in any event involve the introduction of multiples in respect of the assessment of the maintainable profits and the P/E ratio that depend on opinion and have a major effect on the valuation, d) any valuation by reference to the question what could be expected on a sale would either be by reference to a bracket or if a single figure was chosen the valuer would accept that there was a bracket and that his figure was within it, e) there would be considerable uncertainties in respect of the estimation of the value of the companies as a means of producing capital by way of sale and considerable attractions to those involved in the business (i.e. the husband) of continuing to trade and thereby continuing the income stream. But given the age of the husband he would be likely to be thinking of an exit strategy if he was acting reasonably and rationally, f) extraction of funds by way of dividend or bonus or salary would have knock on commercial effects on profitability and the likely sale price, g) there would be a need for information from professionals involved in selling private companies as to how any sale should be prepared and promoted, h) there would be a need for tax advice, and i) any restructuring of the companies would be likely to involve alteration to the Articles of Association and/or issues of company law, and some degree of cooperation between the parties if it was to have a reasonable chance of working without further litiga tion.

[107]Unsurprisingly the evidence has demonstrated that all or most of the above points, and some others, do arise.

[108]Additionally a proper consideration of the above points on a preliminary basis would have revealed that in this case: i) issues would arise because of the nature and mix of the assets owned by the holding company, and ii) there is an issue relating to an outstanding claim for tax and possibly penalties by the Customs in the USA. Plainly this has an impact on both the value of the company and its ability to sensibly and lawfully provide funds to the husband to enable him to purchase assets or to satisfy any payment he is ordered to make to the wife. The nature of the trading business

[109]As the husband explained his main business is the purchase of by product material produced by th e aerospace industry. The main market for this is the USA. This material is imported and treated by the trading company at the foundry owned by the holding company to produce 70% titanium. The market for this titanium is all over the world and much of it is used in the car industry.

[110]The husband is central and crucial to the business. He has built up contacts over the years. He is the person responsible for buying the raw material which is bought on the open market from the producers of the by product. He explained that he can get good deals from his contacts and that he has arranged terms of payment from them that are very favourable to cash flow because, coupled with the much shorter terms of payment on sales (now nearly all to agents) that he has negotiated, they result in payment for the 70% titanium being received before, or only shortly after, the date for payment for the raw material. The husband is also the person responsible for negotiating and agreeing the sales.

[111]Profitability is affected b y, amongst other things, the price and availability of the raw material, exchange rates, the cost of producing the 70% titanium and the market for that titanium.

[112]The business is very personal to the husband. Indeed, although conducted through a company the buying and selling activities equate to those of a sole trader, namely the husband. Much of the purchase of raw materials is done by making deals on the telephone. Competitors know the sources of, and thus the market for, the raw material and the range of buyers of 70% titanium but they, and no-one at the company, have the personal relationships and reputation that the husband has built up over the years upon which a very substantial part of the company's business is based. Its successes and failures over the years has been based on the decisions made by the husband.

[113]In recent times the margins have been very good. The husband said they were never to be repeated. It was acknowledged by Mr H that they had been good and had resulted in increased profits with decreased turnover. Obviously it was common ground that these are general market conditions.

[114]During the hearing the husband raised a point supported by articles in trade magazines that a threat to his business had recently arisen in that 35% titanium, which can be produced from ore, is now being used in place of 70% titanium. One of the articles dated 11 December 2006 quoted a producer source as saying that the market in 70% titanium would not disappear but that he could se e it as being 50% smaller. The article also stated that the popularity of 35% titanium would result in a drop in price of 70% titanium.

[115]In my view although the articles relied on are recent the late introduction of this point merits cynicism and caution. Certainly, it seems to me, that if the husband had taken a constructive and co-operative approach to the issues relating to the company and thus provided a forecast as to its future this point would either have been included therein, or he would have been able to demonstrate clearly that it was something that had only recently arisen, or had only recently come to his attention.

[116]So far as I am aware, the husband did not raise this particular point with Mr H although as Mr H's reports show the husband did raise with him that the business faced an uncertain future and increased competition from manufacturers in China Brazil and India and that this was one of the factors which the husband maintained would result in a further fall in the gross profit margins. The reports and evidence of the jointly instructed expert (Mr H) Introduction

[117]Mr H wrote two reports and gave helpful evidence which demonstrated that he had expertise in the areas of valuation that he considered and reported on. He was an impressive witness on those areas.

[118]The problem with his report and evidence concerns, and flows in large measure from, the point that he did not consider a number of relevant matters or did not do so in any depth. Some of these he flagged up and some of these he did no t.

[119]I make the ge neral point that these proceedings (and other ancillary relief proceedings) are not a situation when a willing buyer is by law to be assumed (as can be the case for tax valuations ), or one where there is an identified buyer (e.g. as in a s. 459 petition). Rather overall fairness is the goal and the valuation exercise is one that seeks to put a capital value on assets that are retained (or may be retained) to assess what orders to make under the MCA and in that respect the value in capital (and income terms) of assets if they are to be retained by one of the parties. Issues o f, and relating to, extraction or conversion into cash of corporate assets and shares, and of marketability are also relevant.

[120]As he records in his first report Mr H was instructed to prepare a single joint expert's report to value the business interests of the husband in the companies and to examine the ability of the husband to obtain capital from his companies to meet the wife's claims and the effect on the companies of such a course of action. He was therefore instructed in general terms. (As I mentioned earlier he also had further instructions which he described, in my view correctly, as having been instructed to examine the following issues(a) allegations of the diversion of company funds to meet personal expenditure of the husband or expenditure on others, and

(b) expenditure on company credit cards but the husband's secretary). Valuations

[121]In his first report dated 23 September 2006 he valued the group at £2,480,000. In his second report dated 30 November 2006 he valued the group at £4,600,000 (an 85% increase). The main causes of this increase were a revaluation of the trading subsidiary to take account of the earnings for the trading year to December 2005 and the inclusion of a sum in respect of what Mr H considered to be the cash surplus (the figure so included was £1m). This figure was based on not only the 2005 unaudited accounts but also a manuscript summary as at 19 October 2006 showing a net cash position of £1,125, 421. (This shows that he had at least some up to date information). I add that he accepted in cross exa mination that a sum of £400,000 should have been added to his earlier valuation in respect of surplus cash, making it £2,880,000 (and thus the increase 60%). As Mr H sets out his second and supplemental report was made pursuant to an order of the court dated 26 October 2006 to update his report in the light of the valuations of the artwork and any accounts received for the year to December 2005.

[122]The divorce petition was issued in January 2005. So the first valuation is primarily based on the accounts and earning up to that time. The breakdown of the marriage was in the latter part of 2004.

[123]As I have mentioned, the increase in profitability in 2005 (and 2006) and of the cash reserves has been derived from a smaller turnover but increased margins. This results to a large extent from relevant world trading conditions rather than particular actions of the company, whose turnover dropped, but also possibly from the decision to sell to agents on terms that gave cash flow advantages and other business decisions made by the husband.

[124]The approach adopted by Mr H was in broad terms to: i) value the trading subsidiary on an earnings and an assets basis and to take the results forward into the valuation of the holding company. He does this by treating the amount by which the earnings value exceeds the assets value as goodwill and including that figure of goodwill in his overall net assets valuation of the holding company (the effect of this is to include the earnings value of the trading company), ii) value the other subsidiaries essentially on a net assets basis and take that figure into the valuation of the holding company, and iii) value the other assets in the holding company by reference to their book values or the valuations obtained.

[125]The ne xt step is to total the amounts so calculated in the hands of the holding company. Thus the overall valuation of the holding company is based on: i) a va lue for the trading company, ii) a value for the other subsidiaries, and as to this the Ugandan company was treated as being 100% owned by the holding company, and iii) a value for the other assets of the holding company (which include its art, its interest in the matrimonial home and the freehold of the foundry). As to this uplifts in value over book values are included other than in respect of the art. This is clearly a mixed bag and shows that the trading company does not own the property it uses as its office (the basement of the matrimonial home) or its foundry.

[126]The supplementary and second valuation includes a valuation of the trading subsidiary on an earnings basis of £2,460,000. This is an increase from £1,335,000. The change flows from an increase in the maintainable (post-tax) earnings from £267,000 to £492,000 (and thus the sum to be multiplied by the P/E ratio), which in turn flows from an increase in maintainable (pre-tax) earnings from £829,000 in 2004 to £1,903,000 in 2005 (after adjustments to take out the provision made therein in respect of the claim by US Customs and £600,000 paid as a pension contribution). In calculating the maintainable earnings Mr H gave a weighting of one to the 2005 figure to reflect, amongst other things, exceptional trading for the year. He included the same weightings namely 3, 2, 1 for the years 2004, 2003 and 2002. The change therefore flows from the valuation being based on an extra year. He used a P/E ratio of 5 in both valuations.

[127]Mr H in his oral evidence said that in his view the P/E ratio reflected the husband's special role in the business and, if anything, was modest. As I understood his reports and evidence he was also of the view having regard, for example, to the information available on the trading for 2006 that the weighting of the 2005 results was also modest or conservative. The US Customs claim

[128]In both his reports Mr H refers to a claim made b y, and a dispute with, US Customs. In the accounts of the trading company to December 2005 a total provision o £1,743,374 was made in respect of the US Customs claim in respect of back duty, interest, fines and penalties (which reflects the husband's estimated provision of $US 2.4 million, referred to in the first report). Mr H makes a much smaller provision in both his reports by reference to the total potential duty exemption claimed by the company (and disputed by US Customs) referred to in a letter dated 8 June 2005 from the company's American lawyers ($493,000). Mr H's view in his reports was that 50% of that was a reasonable provision (namely £137,000) on the information presently provided to him and that no provision for interest, back duty, fines and penalties should be made.

[129]There is thus a very large, and potentially very significant, difference between the provision made by Mr H and that included in the unaudited 2005 accounts. It is of the order of £1.4m.

[130]In my view correctly Mr H recognised that the US Customs claim was a significant matter which remains unresolved and the Court may wish to consider this when "factoring any valuation into any settlement of the parties". Notwithstanding this express qualification neither side took steps to furnish or obtain further information about the claim.

[131]In his reports Mr H explains his provision in respect of this claim by reference to his experience of negotiations with UK Customs and a view that not all the issues would settle in favour of the US Customs.

[132]In his oral evidence Mr H helpfully provided further information about the US Customs claims. He pointed out that unsurprisingly he was not an expert on US Customs law and practice and his view was an overall assessment on the information available to him and was not a compromise. He said he was aware of 8 claims made at two or three ports and on different bases. The claims relate to duty on exports of ferro titanium powder by the trading company to the USA and thus after the raw material has been processed by it at its foundry. One basis related to 5 of the claims and was whether the processing requirement had been met and the other related to 3 of the claims and was as to whether the material was sourced in the USA. The duty claimed was 3.6%. Mr H referred to correspondence from the lawyers acting for the company in the USA. That was the source of his information and on my reading it confirms Mr H's helpful summary.

[133]The correspondence shows that the claim relates to a duty exemption available for metal manufactured in the USA that is processed abroad and then reimported back into the USA where it is then processed for a second time. The trading company has been claiming this exemption for more than five years on scrap metal purchased in the USA, processed into ferro titanium powder in the UK and then imported back into the USA where it is used to make cored wire. The letter dated 8 June 2005 the American lawyers say this:

" Therefore, at this point we are addressing to issues in two different courts regarding your company's use of the 9802.00.60 exemption. These inquiries only involve five import shipments in Champlain and three import shipments in Philadelphia. However, the stakes are much broader if CBP does not agree that the ferro titanium powder is sufficiently processed when it is manufactured into cored wire or that the scrap that you exported is United States origin. Under CBP's penalties statute, it can go back five years to recover duty and assert penalties for negligence, gross negligence or fraudulent conduct. Mr --- has provided me with a spreadsheet indicating that the total duty exemption claimed by your company over the last five years was over $493,000.00. If all of this duty exemption were disallowed it would have to be repaid to CBP with interest. In addition, CBP could assert penalties on top of that amount of two to four times the duty owed up to as much as the value of the goods if they assert fraud."

[134]In July 2006 the American lawyers sent to the company a copy of the decision of t he headquarters of US Customs. That decision was that the processing requirement was not satisfied when the powder was used to make cored wire. This has nothing to do with the claims based on an assertion that the scrap did not have a USA origin. The advice of the American lawyers was that the US Customs were on shaky grounds if the point was litigated at the Court of International Trade and that the company might be able to convince the port that the processing requirement was met.

[135]The American lawyers commented on the approach of Mr H by stating that they did not think it reasonable to expect US Customs to negotiate a settlement for less than the full amount of duty that it determines to be due and owing. Further they stated that the matter would now be likely to be decided by a court of law in the USA because the company had lost the appeal of the initial determination made by the port of entry and the internal advice issued by Customs headquarters can only be challenged in litigation in the US Court of International Trade. They added that unfortunately litigation in that court is rather expensive and the company could expect to spend $200,000 to $300,000 to take such a case through trial. They also added that while the government has occasionally settled such cases, settlement usually does not occur until much later in the litigation and that moreover the amount in dispute in any such litigation would involve both duties and penalties of anywhere between two to four times the lost revenue.

[136]My understanding from that letter is that the American lawyers are referring to the June 2005 decision and no longer think that the port of entry might be persuaded to accept that the processing requirement is met.

[137]The husband told me that he had decided not to litigate the point and that the company was now paying the duty. In submission he was criticised for causing duty to be paid before it was due and advice was received on the amount claimed. But this was not explored in evidence and an answer could be that he was seeking to promote a situation that left "sleeping dogs to lie".

[138]Mr H accepted that if the claims had been made at other ports of entry he would revisit the position as to the provision to be made in respect of the US Customs claim. No evidence was put to him to support the contention that other such claims had been made (and in those circumstances understandably he did not reconsider his position in the light of such claims having been made). After Mr H had completed his evidence counsel for the husband produced some material which indicated that claims had been made at other ports of entry. The introduction of this documentary evidence was objected to on the basis that it had not been put to Mr H, also the husband was not recalled to deal with it. In my judgment these points go to its weight.

[139]It is apparent that I and Mr H have limited information about the USA Customs claims. For example: i) I was not told the position relating to the claims based on the assertion that the original scrap material did not originate in the USA, ii) I was not told what, if any, of the other claims relate to a final product other than cored wire, and thus whether the "processing argument" and the claims thus far are confined to cored wire. Clearly other final products would potentially, if not inevitably, involve other processing points, iii) I was not given any detailed breakdown of the claims, and iv) I was not provided with any detailed analysis of the claims or any advice on the company's position and prospects in respect of them (including whether US tax would be recoverable here although no doubt non payment would cause trading problems in the USA).

[140]On the present information the provision in the unaudited accounts of the company equates to the worst case scenario flowing from the quantum of the tax claim identified in the correspondence plus penalties etc., and there are grounds for thinking that the reality is that the company would not face such a high liability (particularly in penalties – the higher multiple in respect of which seems to be based on fraud). But in my judgment neither I (nor Mr H) is in a position to make a properly informed estimate of the claims, the risks and prospects relating to them and thus what provision should be made in respect of them.

[141]The accounts have not yet been audited and as I understand it the distributable reserves / profits of the company will be based on such accounts (subject to their revision) and thus significantly affected by the provision made by the auditors in respect of the US Customs claim.

[142]It was submitted on behalf of the wife that I should accept and proceed on Mr H's assessment of the provision that should be made in respect of the US Customs claim on the basis that this was the view of the jointly instructed expert, and thus the expert evidence before me. Even in the absence of the express reservation made by Mr H that the court may want to reconsider this issue I would have rejected that submission because in my judgment Mr H's reasoning, and the correspondence he referred to, demonstrates that his provision is not one that the court can rely as being properly informed and thus as a sufficient and fair prediction of the future. Mr H's reservation recognises this and in my view of itself makes the point advanced on behalf of the wife a bad one. At the least it seems to me that the court must recognise that at present both it and Mr H do not have available and very relevant information about this claim and that a wide range of possibilities exist in respect of it.

[143]For the purposes of these proceedings much of the relevant information could have been obtained by preparation that recognised the relevance of and the problems relating to this US Customs claim. Both sides could have so addressed the problems. They failed to do so. I acknowledge that even if available information had been provided (or sought through specific questions and answers and possibly orders) some uncertainties relating to the attitude and likely approach of the US Customs would probably have remained and issues would have arisen as to how the dispute with them should be approached (for example should closure be sought, should it be litigated or should it be left to lie). Marketability

[144]One of the written questions Mr H was asked in respect of his first report was given his valuation of £2,480,000 whether, with a reasonable marketing period, the business could be sold for a figure of at least that amount. In answer he accepted that the business would have to be sold in a piecemeal fashion and that the sale of the trading business would be dependent on one of a few similar types of business being interested in expanding its business operation. He stated that on a broad brush approach, and assuming that the sale of artwork realised its book value, a sum of £2.2 million could be realised. By the next written question he was asked questions relating to tax. H is response was that he was not instructed to report on such issues, but he goes on to make a number of points although as he confirmed in his oral evidence he is not a tax specialist. In doing so: i) he pointed out that it is unlikely that a prospective purchaser of the business would wish to acquire the artwork and assumes that it was the husband's intention to ultimately acquire it, ii) he refers to correspondence with the Revenue relating to the transfer of the artwork and, to my mind correctly, points out that it is unlikely that the Revenue would now act on this because it refers to a transfer by 31 December 2001. In my view it is clear that before that correspondence could be relied on the attitude of the Revenue would have to be checked, iii) he refers to possibilities relating to the transfer of the artwork and tax consequences of them, iv) he calculates tax on a disposal of the shares in the holding company after the extraction of the art (but makes no mention of the Ugandan company, or the American company, or other non trading assets which a purchaser also would or may not want) and puts forward an effective tax rate of 10%, and v) he makes the point that if it could not be demonstrated that the criteria to qualify as a trading company were met the effective rate of tax would be 26% on a disposal of the shares.

[145]This leaves extraction, disposal and tax questions open. Such questions were not addressed during the hearing. They are important.

[146]Near the start of his oral evidence Mr H by reference to his second report said that he would expect £4.05 million on a sale. He did not at that stage qualify his answer by reference to his earlier written answer about extracting the artwork (or the Ugandan company, or the American company, or other non trading assets) and he was not asked about this. My understanding was that he wa s accepting that a purchaser of the shares in the holding company who wanted the totality of its assets would not be found. In cross examination he widened potential purchasers to trade buyers, institutional pur chasers and private individuals and as I understood that evidence he was referring to potential purchasers of the trading business.

[147]At this point I jump ahead to record that as a result of a question from me during final submissions that I did not follow or accept the 10% tax charge applied (by both parties) in their presentation of the value of the net assets (both in respect of assets of the holding company and in respect of a sale of its shares) further information was sought from Mr H and his firm. In response a tax partner in that firm in my judgment states correctly that: " In realising value from the assets it is unlikely that a purchaser would be found who would wish to acquire, for example, the artwork, Ugandan property/company, its US property and the investment in the [matrimonial home] along with the trading business".

[148]This point and the points arising from it relating to a sale (and thus the valuation) of the holding company and its assets were not addressed in oral evidence with Mr H, or in final submission save to the extent that extraction was assumed because a sale of the shares of the holding company was asserted and assumed on the basis of a 10% tax charge and both parties presented their cases on the basis that the husband would retain all or many of the non-trading assets. But neither of them indicated in any detail how they said this was to be achieved and paid for. The report from Mr H's partner obtained after the hearing

[149]In this report Mr H's partner says (amongst other things):

" Realisation of value from the assets Due to the group structure and the vastly different nature of the assets owned within the group the position is complex. - - - - - To be able to dispose of the shares in [the holding company] would require the prior extraction of all the various non trading assets throughout the group. This will crystallise capital gains throughout the group. UK gains would probably arise within [the holding company] and are likely to be taxable at a rate of 30%. As overseas assets are involved there may also be tax charges overseas. There may be ways of restructuring the group prior to a disposal to minimise these potential liabilities but this would comprise a substantial tax planning exercise and is outside the scope of this report. Ordinarily, the most tax efficient means of disposal of the trading business would be the sale of the shares in the holding company, which as previously explained for trading businesses, may be taxable at the effective rate of 10% if the maximum rate of taper relief is available. - - - - - Because of the subjective nature of this interpretation, we cannot categorically state that the group will qualify as a trading group and that, as a result, the maximum rate of taper relief will be available. However, were we advisers to [the husband] we would expect to be able to have a reasonable argument that this was the case. - - - - - Sale of trading business by [the holding company] if other assets not extracted If the other assets are not extracted, a sale of the trading business would require [the holding company] to dispose of the shares of [the trading subsidiary] giving rise to a capital gain taxable at 30% - - - - - Extract all non trading assets now to [the husband] personally To be a position to sell the shares in the holding company, and thus be in a position to attempt to take advantage of the potential taper relief, would necessitate the extraction of all non trading assets throughout the group. Extraction of assets would crystallise capital gains. We have insufficient information to be able to quantify all the gains which may arise. The artwork was recently valued at approximately £1m. We understand that its base cost was in the region of £1.6m. This would potentially result is a capital loss of around £600,000 wit hin the holding company should the artwork be extracted. Capital losses within a company can be offset only against capital gains. The implications of this are that the potential loss should then be available to reduce other gains which ma y arise - for example transferring the shares of the various subsidiaries to [the husband]. In the event that the capital gains on all other non trading assets / subsidiaries are less than the capital loss then no corporation tax should be payable. The most tax efficient means of extraction of these assets is likely to be a dividend in specie to [the husband] of the market value of various items: Artwork 1,000,000 US property say 200,000 Uganda property 165,000 Share of matrimonial home 333,333 1,698,333 Whether it is more efficient to extract actual assets or the companies in which they are owned and into what type of structure would form part of a complex tax planning assignment outside the scope of this report. The dividend in specie, however, is entirely dependent on [the holding company] having sufficient distributable reserves available to be able to declare it. Based upon the draft accounts to 31 December 2005 this would not appear to be the case. It may be possible to crystallise sufficient distributable reserves in [the holding company] by each of the subsidiaries distributing their own distributable profits to [the holding company]. Without the accounts of each company to the current time it is impossible to tell whether this could result in sufficient reserves. As noted in Mr H's report, the 2005 draft accounts of the [trading company] do reflect the £1.6m full provision, including full penalties and interest, of the US Customs dispute. Once the extent of this liability is crystallised, the amount of the distributable profits, and surplus cash balances, available in the group could be more readily quantifiable. In the event that distributable reserves are available the likely tax implications are as follows: Capital gains on disposal - mitigated by capital loss? 0 Corporation tax payable therefore 0 Tax payable by [the husband ] on distribution (31 Jan 2008 if before 5 Apr 2007) 424,583 Tax payable by [the husband] on sale of the holding company 240,000 Total tax liability 664,583 In the event that distributable reserves prove insufficient, the alternative means of distribution to the husband would be to award him a net bonus equivalent to the market value of the assets. The gross bonus required to result in a net £1,698,333 would be £2,878,531 and require immediate payment of PAYE and NI of £1,548,650 payable by the 19th of the month following extraction. This is therefore unlikely to be a realistic alternative. Conclusion It is unrealistic for [the husband ] to be able to find a prospective purchaser for the holding company prior to the extraction of the various diverse assets. * Extraction of the non trading assets from the group will crystallise capital gains, subject to UK corporation tax most likely at 30% and carry possible overseas tax implications. * It is outside the scope of this report to undertake a tax review of the group structure to identify possible restructuring opportunities and ways to minimise the taxation exposure. * The potential capital loss in respect of the artwork may mean that, if it is intended to extract the various assets to facilitate a sale, now may be an appropriate time. This conclusion is drawn for the purposes of this report only. Were we advisers to [the husband] we would recommend a detailed tax planning exercise prior to any group restructuring or extraction of assets. * It is clear from the calculations set out that, to the extent that any capital loss arising in respect of the artwork is available to offset against any capital gains, extraction of the non trading assets by the disposal of the trading company should result in a much lower overall tax liability."

[150]I have also been shown a file note recording that in answer to a question from the wife's solicitors the author of that report stated that the tax of £424,583 would not be payable if the transfer was to another company. This reflects an earlier part of the report but does not indicate whether the company envisaged by the question is within or outside the group. If the former marketability remains a problem, if the latter and the company is owned by the husband the problem of how it would raise the purchase price is not addressed. Referring to the earlier part of the report which envisages a transfer within the group on the basis of an inter group loan, as the report says this loan would have to be repaid (and thus the repayment funded) prior to a sale of the holding company. Thus the file note (like much of the presentation at the hearing) does not examine and explain the position with appropriate particularity.

[151]The report obtained after the hearing is helpful. It was obtained quickly. It clarifies the position and identifies matters that need further investigation. It also confirms and identifies a number of the gaps in the presentation by both sides at the hearing.

[152]If the commercial approach I advocate had taken place in this case something like the post hearing report should have been produced at an early stage of the litigation (although it would not have included the figures based on valuations). So at that stage it would have been known that: i) The non trading asserts would have to be extracted. ii) If they were there was a good chance that the shares in the holding company (valued as the owner of the trading company) could be sold with an effective tax charge of 10%. iii) To extract the non trading assets in the affordable way suggested (dividend in specie) there would have to be sufficient distributable reserves / profits. iv) The availability of such distributable reserves/profits was significantly affected by the provision made for the US Customs claim and thus the detail of the merits of that claim. v) Tax charges on the extraction needed to be addressed. vi) It the dividend in specie route was not likely to be available other strategies and methods of maximising value would have to be considered.

[153]If this had been identified at an early stage the expert evidence could, and no doubt would, have been directed to it and the parties should have been in a position to present their cases against the background of a proper description of the viable alternatives concerning the realisation of the value of the business assets.

[154]They were not in a position to do this and consequently did not do so. The ability of the husband to obtain capital from his companies to meet the wife's claims and the effect on the companies of such a course of action

[155]This was the second limb of Mr H's instructions. In its general terms it is at least arguable that it covers the points of marketability, extraction, tax and company law covered in the report obtained from his partner after the hearing.

[156]Mr H did not however approach and report on the second limb of his instructions in this way. Rather he simply recorded amongst other things that: i) payment out to the husband would have to be by way of dividend or remuneration which would have taxation issues, ii) if cash balances were used this would reduce his valuation, and iii) the court may wish to reconsider the issue of the US Customs claim when "factoring any settlement of the parties".

[157]Mr H did not consider the tax and company law points referred to in the later report from his partner, or the need to and the methods available to extract the non trading assets.

[158]Further he did not attempt to produce any before and after picture following the raising of capital in the ways he suggested as possibilities and thereby address the effects of them on either valuation or liquidity. These possibilities were(i) refinancing of plant and machinery (£269,000),

(ii) sale of motor vehicles (£33,500),

(iii) trading property remortgage (£315,000),

(iv) sale of US property (£209,000),

(v) the factoring of trade debtors (£750,000),

(vi) excess cash balances (£400,000) and

(vii) pension fund advance (£400,000). This reflects the list and figures in his first report. In his second report he points out that the list excluded any amount realisable on the sale of artwork and was based primarily on the 2004 statutory accounts. Given the value of the artwork and his view as to the increase of the cash reserves to my mind surprisingly he says that he considers that the same sum namely £2,376,500 could be raised. He however goes on to qualify this (a) by stating that a further sum could in his view be raised through excess cash balances, and (b) by saying that ultimately he would need to consider more up-to-date information regarding the current bank balances and the crystallisation of the amount paid in full settlement of the US Customs claim and that the court may wish to factor this in when considering how any settlement is eventually funded.

[159]Mr H's reports, his written answers to questions on them and his oral evidence do not deal with a number of matters raised in the report provided after the end of the hearing. However those sources of his evidence do contain qualifications to the effect that the court may wish to consider matters addressed in that later report when considering "how any settlement is eventually funded" and thus what orders should be made. Oral evidence from Mr H and comment on it

[160]He confirmed as appears from the description of his expertise in his reports that he is not an expert on tax or on the marketing of a company.

[161]He told me that he had proceeded on the assumption that the business was saleable and that businesses that are highly dependent on one person are sold, but that he had not approached members of his firm or others who specialise in selling companies or investigated the potential market. He took account of the key role of the husband in his P/E ratio. This too he did not discuss with any specialist in selling and marketing a business of this type.

[162]Equally Mr H did not seek specialist tax or company law advice within or outside his firm on issues relating to extraction. Nor did he seek more detail in respect of the US Customs claim and the provision that should be made in respect of it, although he flagged up that this was significant and there was a lack of information about it.

[163]I agree that businesses of this type are sold. But as I have said this is not a situation when a willing buyer is assumed to exist or in fact exists. Rather overall fairness is the goal and a relevant factor in considering what is fair is the practical reality of finding a purchaser and the timescale of that. This simply was not investigated. To my mind, and Mr H did not disagree, there are real uncertainties as to this.

[164]Mr H also agreed with me that if he, or the husband, consulted the persons who deal with the sale of companies in his firm or elsewhere, they would be given a wide bracket. He did not specify (and was not asked) the width of the bracket. I accept that his valuation and what he would expect to achieve on a sale is within his bracket and that his evidence was to the effect that he had taken a modest or conservative approach to the two main variables in the underlying valuation of the trading company namely the maintainable earnings and the P/E ratio.

[165]The date or dates at which Mr H should value were not defined and there was no argument as to the date I should take for valuation. In this context I accept that it is at least arguable that if the correct date is December 2005 that information coming into existence after that date can be taken into account. Further on issues relating to affordability the up to date position is important.

[166]But the very significant change in value by reference largely to general market conditions after the breakdown of the marriage is a clear indicator of the volatility in a valuation of the trading company based on its earnings. The presentation of the points relating to the companies at the hearing

[167]As I have said in my view the parties were not in a position to, and therefore did not, present their cases against the background of a proper description of the viable alternatives concerning the realisation of the value of the business assets.

[168]Given the costs incurred and time spent on this case this is a lamentable result.

[169]In my view the letter of 22 December 2006 from the wife's solicitors (agreed by the husband's solicitors) at least partially recognises this by stating that judgment "cannot be formulated without the information we are requesting". The next paragraph stated:

" In the course of final submissions, the issue arose as to how [the husband] could most efficiently, including in particular from a tax point of view, dispose of realise the value of his business interests- - - - - . Mr Justice Charles said that he would welcome assistance on this point and, in particular the tax rate, from Mr H or his taxation or other colleagues at [his firm] "

[170]That assistance was provided initially by a letter from a member of that firm that Mr H recognised did not provide sufficient assistance in answering that question and then by the report I have referred to.

[171]This recognition by Mr H is also an acknowledgment that at the hearing the argument and rival positions of the parties was based on an incomplete identification of relevant issues in his reports. Further submissions

[172]I therefore asked both partie s whether they wished to make further submissions.

[173]Given(a) the points made under the previous heading,

(b) the desire of both parties for a clean break and

(c) the lack of detailed submissions on alternatives if I concluded that on the information available and argument that did not have regard to the further information obtained (or otherwise) a clean break could not be fairly ordered, I confess that I was very surprised that their response was that they did not. Can I untie or cut the Gordian knot?

[174]As already indicated I accept that there are strong arguments in favour of a clean break. The question for me is whether I can achieve this on a basis that I am satisfied is fair on the basis of the information provided and argument advanced.

[175]They partie s seek a clean break on significantly different bases. In very broad terms the husband urges a sale of the trading business and a division of other assets. The wife urges a division of assets and the payment of a lump sum based on Mr H's valuation.

[176]I have concluded on the information and argument before me that neither of the results urged by the parties results in a clean break that can with sufficient confidence be said to be fair and I have not identified an alternative about which that can be said. In my view if I was to order a clean break now my order could justifiably be described as an under-informed guess. That is not an appropriate basis for making an order under the MCA to achieve a fair result.

[177]The answer to the question posed in this heading is sadly therefore "no".

[178]I set out under the next four sub headings my main reasons for this.

[179]I record that I have reached this conclusion with very considerable reluctance because of the strength of the arguments looked at from both sides in favour of a clean break and because it seems to me that the additional information indicates that if the parties and their advisers were to take a constructive and commercial approach there is a reasonable prospect that a solution would be found. The extraction of the non trading assets including the African art

[180]The solutions of both parties involved the effective removal of the African art from the holding company to the husband or a company controlled by him. They also implicitly involved the extraction of the other non-trading assets. As I have stated earlier neither side addressed in detail how that would be achieved. The additional information shows that there are problems relating to this that have not been addressed by the parties. For example, the approaches taken before me that(a) Mr H's valuation of the holding company could be taken with a 10% capital gains tax deduction and/or

(b) the non trading assets could treated as extracted and brought into account at valuations less 10% capital gains tax, are flawed. Also neither side advanced any detailed argument as to how the African art was to be removed from the holding company to the husband or a company controlled by him outside the group.

[181]The additional information not only confirms the need to extract the non trading assets before a sale of the trading business through a sale of the shares of the holding company (with a prospect of only a 10% tax charge, as advanced by both parties) but shows that the writer (Mr H's partner) is not in a position to quantify all the taxable gains that may arise. It follows that I cannot do this either. The file note referred to in paragraph 15o hereof does not provide clarity or a solution.

[182]The point made that a loss might arise from an extraction of the African art which could be set against other chargeable gains plainly merits investigation. But this possibility has to be placed into an overall structure, and this has not been done.

[183]The question of whether the matrimonial home is sold will have an impact on the extractio n of non trading assets.

[184]The values put on the non trading assets by the parties in advancing their arguments are therefore unreliable.

[185]The additional information also shows that there are problems relating to payment for an extraction of the non trading assets. The suggestion is that there should be a dividend in specie. This problem and suggestion gives rise to a tax charge which it seems to me again demonstrates that the approach of including the non-trading assets by valuing them with a 10% tax charge is flawed. Alternative routes of payment would also give rise to points of detail and problems.

[186]The suggested route of making a dividend in specie would only be possible if it is established that there are sufficient distributable reserves. This takes one back the treatment of the claim by the US Customs. Distributable profits / reserves, the US Customs claim, available cash

[187]The availability of distributable profits / reserves is relevant to extraction of the non-trading assets, the raising of a lump sum and the valuation of the trading business. In the last instance this is indirect because it relates to the amount of cash in the company.

[188]The amount of distributable reserves/profits and available cash is significantly affected by the US Customs claim and its treatment in the accounts. For the reasons I have set out in my judgment the treatment of this by Mr H in his reports is based on limited information. In my judgment this means that it cannot be safely and properly relied on.

[189]In my view the lack of information as to the US Customs claim constitutes a gaping hole in the information that it is relevant to consider before a properly informed view can be reached as to what would be a fair clean break.

[190]Other matters are relevant to the ability if the husband to raise cash to make payment for assets including any loans from the pension fund and the effect of payments made or ordered on the trading position of the company and thus its continuing value in the hands of the husband and on the ability of the husband to fund an appropriate lifestyle. At present the information provided on those issues is limited. The valuation

[191]I have already made a number of comments on this.

[192]I accept that there is always going to be some, and perhaps considerable, uncertainty about this which might of itself prevent a clean break based on a valuation. But uncertainty has to be assessed and faced when ordering a clean break and it may be that when this is done against the background of a properly informed analysis the range of possible results will not preclude a clean break (perhaps particularly if the wife was prepared to take the risk of the value used in ordering a clean break being too low). It seems to me that any assessment of the uncertainties would be assisted by an identification of the range of value (which Mr H accepted would be what the husband would have been given if he had asked for advice about a sale). I confess some surprise that Mr H thought it appropriate simply to give a figure in his valuation.

[193]In my view the lack of a sufficiently thorough investigation of the extraction of the non-trading assets, the US Customs claim and of the available market have the result that the present valuation cannot be properly and safely relied on. I add that it also seems to me that it should be carefully considered whether further assessment of the likely future maintainable earnings is merited having regard to the market (including the late entry by the husband concerning the market for 70% titanium) and the husband's role in the business. Sale

[194]In my view rightly during the hearing counsel for the husband accepted that his assertion that there should be a sale was insufficiently particularised. This omission was not remedied in evidence or final submission. Anyone who has had involvement in the sale of businesses in which the participation of an individual, or a team of people, is important will appreciate that the proposed terms of sale are of vita importance and in particular a sale of a business of the type involved here without detailed provision relating to hand over and competition runs the risk that the vendor will sell at a low value and effectively continue to take benefit from business contacts in competition. Should I make an order?

[195]Having concluded that on the information before me I cannot make a clean break order that is fair the question arises whether I should make other orders.

[196]In this context despite my request to be addressed on alternatives almost nothing was said about possible alternatives. Also the parties have indicated that they do not want to make further submissions.

[197]My conclusion that I cannot make a clean break order would it seems to me mean that I would have to: i) make an order for periodical payments on the basis that the trading company, as an asset of the holding company, fell to be treated as an income producing asset or vehicle, and ii) in light of(a) my finding that the holding company has a beneficial interest in the matrimonial home, and

(b) the findings set out under the heading "miscellaneous", consider making orders for property adjustment, pension sharing, sale, and a lump sum. A number of variations would be possible.

[198]It seems to me that some points of law may arise. For example : Can I make orders for periodical payments, a number of property adjustment orders and a pension sharing order and adjourn the application for a lump sum thereby avoiding the limitations on assessing the amount of a lump sum order at a future date set by Pearce v Pearce

[2003] 2 FLR 1035

, and/or does the approach set in that case remains good law after the decision of the House of Lords in Miller v Miller; McFarlane v McFarlane

[2006] 2 AC 618

? The answers would potentially affect what, if any, lump sum order I should make. Further it seems to me that I could order a sale of the matrimonial home (the husband and wife are its legal owners and the holding company does not, and could not, object) but the position and my powers in respect of the other non trading assets of the holding company is not the same.

[199]I would be considering these points and issues of quantum and fairness without the bene fit of any argument.

[200]I have concluded that notwithstanding the failure of the parties to indicate that they wished to make further submissions it would be unfair and unjust for me to proceed to make such orders without the benefit of argument unless, in the light this judgment, the parties indicate that they do not wish to make further submissions.

[201]In reaching this conclusion I have also taken into account my view that a constructive and commercial approach could result in a clean break, and the benefits that would give. It follows that if further submissions are made they can include argument for a clean break on the basis of evidence that fills the present gaps in relevant information. Miscellaneous

[202]I have heard argument on some other points and I decide or comment on them under this heading. The husband's inheritance

[203]There was mention of the husband receiving an inheritance from his mother. There was no evidence as to what this is, or might be, and the husband told me that he had not investigated this.

[204]If I was in a position to make a final order now I would discount this inheritance. If the wife wants to argue that it should be taken into account she should seek information (if necessary by order) about it. Add backs

[205]It was not argued on behalf of the husband that it would not be fair to make any add back in respect of his expenditure on and in respect of Miss O and her family.

[206]The wife argued by reference to the goal of achieving a fair outcome and Norris v Norris

[2003] 1 FLR 1142

that the add back should relate to expenditure on other women as well. As to this expenditure counsel for the wife stated that despite the best efforts of the wife and her advisers to find this out it has proved difficult to ascertain precisely what has been spent. This shows that at least part of the extensive enquiry instigated by the wife was directed to this end and did not provide evidence of amounts that contradicted the figures provided by the husband relating to Miss O and his general assertions relating to other women. He accepts a figure of £98,813 has been spent on Miss O, her family an d a young boy connected to them between 1 January 2000 and 31 August 2006. The papers contain an earlier calculation totalling about £120,000, which the husband says is wrong. The wife argues that I should assess the total expenditure over the years at about £300,000 and order an add back of £150,000.

[207]In my view the estimate of £300,000 is too high. Further in my view my findings(a) as to the wife's knowledge of, and attitude to, the husband's infidelities over the years, and

(b) that her discovery of Miss O, and the expenditure on her, was a major factor leading to the breakdown of the marriage, have at least a limiting effect on any claim for an add back in respect of other women. As I have said the husband accepts that there should be an add back in respect of Miss O. In my judgment overall fairness is promoted by an add back based on the higher (but now not accepted) figure of £120,000. I accept and acknowledge that this is a rough and ready approach but it is one that seeks to recognise, and take account of, the failings of the husband to fully explain his figures when giving his oral evidence (or elsewhere), his acceptance of an add back relating to Miss O and my findings as to the knowledge, and attitude of, the wife to his earlier infidelities.

[208]The add back will therefore be £60,000.

[209]The husband argued that there should be an add back in respect of a gift of premium bonds by the wife to the children and sums paid to her for costs.

[210]I agree that the gift of premium bonds totalling £14,000 should be added back. This was made in the circumstances of the antagonism and conflict that still continue as a result of the breakdown of the marriage and therefore it seems to me that the wife cannot rely on the assertion that it constituted normal expenditure, or a gift in the normal course of the lives of this family. So in my view she should be treated as retaining these premium bonds.

[211]I agree that sums paid for costs should be added back and did not understand this to be disputed in respect of two payments of £9,324 and £10,000. There was also a payment of £60,000. I accept that much, if not all, of this was used to avoid the wife having debts (other than for costs) and it delayed the application for maintenance pending suit. In my judgment only such part of it (if any) as was used to pay her costs of these proceedings should be added back. If the husband wants to argue that any such payments were made from this £60,000 he should seek information (if necessary by order) about them. Overall Result

[212]I will make a declaration as to the beneficial ownership of the matrimonial home in accordance with my conclusions on that issue.

[213]Unless the parties indicate when this judgment is delivered that they do not wish to make further submissions I shall adjourn the case for further submissions on the other orders to be made on the basis of my conclusions on the add backs and the beneficial ownership of the matrimonial home.

D v D [2007] EWHC 278 (Fam)

Cited in 22 later judgments