B v B
| Jurisdiction | England & Wales |
| Judge | Mr. Justice Bodey |
| Judgment Date | 20 January 2015 |
| Neutral Citation | [2015] EWHC 210 (Fam) |
| Date | 20 January 2015 |
| Court | Family Division |
| Docket Number | Case No. FD12D05311 |
[2015] EWHC 210 (Fam)
IN THE HIGH COURT OF JUSTICE
FAMILY DIVISION
Royal Courts of Justice
Mr. Justice Bodey
Case No. FD12D05311
Mr. R. Sear (of counsel) appeared on behalf of the Applicant.
MR. C. Hale QC (of counsel) appeared on behalf of the Respondent.
This is an appeal by Mr B (whom for convenience I shall call "the husband" brought with permission, dated 2nd July 2014, against an order of District Judge Robinson sitting at the Central London Family Court, dated 19th May 2014, in financial relief proceedings against Mrs B (whom for convenience I shall refer to as "the wife"). It followed a three or four day hearing concluding on 7th March 2014. The order was long and comprehensive running to seven pages plus a two page Schedule. The particular aspect of the order concerned on this appeal is that which effectively (although not in form) shared between the parties (60% to the husband and 40% to the wife) certain shares belonging to the husband. The form of that part of the District Judge's order was by way of an order for a lump sum or series of lump sums as and when those shares should come to be realised.
In place of that order the husband seeks, by way of this appeal, the making of a lump sum order in the sum of £25,000 in respect of the shares concerned, to be paid by him to the wife on the imminent sale of the former matrimonial home. The wife resists the appeal wishing to retain the District Judge's order, whereby she stands to benefit more (or perhaps to do less well) when the husband's shares are realised at some time in the future.
The husband has been represented by Mr. Sear and the wife by Mr. Hale QC. Each has put in quite extensive written arguments supported by cogent oral submissions. The hearing has been conducted in a polite and civilised way without the adversarial posturing so often encountered in this type of case. I have read a lever arch file of material put together for this appeal and have been provided with an authorities bundle containing seven authorities.
Briefly by way of background, the parties married in 1998 and separated in April 2012. The wife is aged about 42 and the husband about 44. There are three children aged from ten down to three, cared for by the wife, who is currently a full time mother and homemaker. Part of the order involved the sale of the former matrimonial home and I understand that an acceptable offer has recently been received. Decree Nisi was pronounced on 17th April 2013 with Decree Absolute on 24th June 2014.
Although several issues had to be determined by the District Judge, there was in fact a large underlying measure of agreement between the parties. That included agreement for the matrimonial home to be sold (as mentioned) and for the estimated net proceeds of sale of some £571,000 (after redemption of the mortgage and so on) to be divided equally. That was anticipated to give the parties some £285,000 each. In addition, they agreed to share equally their net liquid assets of £1,073,000 so as to give each party a further £536,500. Together with the net proceeds of sale of the matrimonial home, this would have given each party about £820,000 for re-housing and so on. However, they agreed to contribute £50,000 each to a school fees fund of £100,000, leaving each party with liquid resources after sale of the matrimonial home of about £770,000. In addition, they agreed to share equally their pension funds valued at £326,000. The District Judge commented in his Judgment that this outcome would largely meet the wife's needs.
Among the issues on which the parties were not able to agree and on which the District Judge ruled were two relating to certain financial arrangements made in connection with the husband's employment. He is a member of the senior management team of a pharmaceutical company in which he has indirectly made an investment. It is somewhat complex, but I think it boils down to this. In 2010, after a period working as a consultant for his own company, the husband joined C Ltd which subsequently became known as D Ltd, his present employer. C Ltd was at that time a subsidiary of E Ltd, a venture capital vehicle. On joining C Ltd in 2010, the husband became entitled to subscribe £13,500 for shares in a new holding company intended to be set up by E Ltd to be called the F Ltd. Before this transaction was effected, the parties separated in April 2012. A few months later, in July 2012, the husband's purchase of the shares in the F Ltd for £13,500 was actually completed. The following month (August 2012) E Ltd, as parent of the new company, F Ltd., sold its majority holding in F Ltd to another venture capital concern, G Ltd. The husband and the other minority shareholders in F Ltd. were embraced in this transaction and likewise sold their shares in F Ltd. to G Ltd. The sale price of the husband's shares to G Ltd was some £3million gross, £2.08million net. However, a term of the deal was that he had to roll over 50% of the net proceeds into a new holding company being established by G Ltd called H Ltd. In the result the husband received £1.04million in cash, the remains of which is a major component in the parties' liquid funds mentioned above, and he dealt with the other £1.04million of his net proceeds of sale in the following two ways: (a) he subscribed for £99,000 odd worth of shares in H Ltd and (b) he took loan notes in H Ltd in the sum of about £942,000, together totalling about £1.04million. For completeness, in October 2012, G Ltd acquired D Ltd, at which time the two businesses and shareholdings were merged. D Ltd. is, as I have said, the husband's current employer.
It was the treatment of the husband's shares and loan notes in H Ltd which the parties could not agree before the District Judge and upon which the District Judge had to rule. He had the benefit of reports from a single joint accountancy expert, Mr. Dodge, which, amongst other things, gave a value for the husband's H Ltd shares and H Ltd loan notes. The shares were valued at the subscription price of £99,000 odd. The loan notes, having been the product of certain repayments in the meantime, were valued at £701,000 excluding accrued interest. The husband's proposal to the District Judge was that he would, on the sale of the matrimonial home, pay the wife a lump sum of £25,000 in respect of his shares in H Ltd (equivalent to about 25% of the value of the shares) and £175,000 in respect of his loan notes (equivalent to approximately 27% of their value net of certain latent CGT): a total of £200,000. The shares and loan notes would remain his.
The District Judge did not accept that proposal. Instead he preferred the submissions made on behalf of the wife that she should share the value of the shares and loan notes with the husband as and when they were realised. In respect of the loan notes, he did not consider (since they represented a loan by the husband to the company) that they would be increased by any future endeavours by the husband within the context of his employment and so he held that the loan notes should be treated as 50/50. As regards the shares, he accepted the husband's case that his (the husband's) ongoing endeavours would be likely to influence their value by the time of realisation. He held, as already mentioned, that the sharing should be as to 60% to the husband and 40% to the wife. I note incidentally that the husband's expertise is in pharmaceuticals rather than in equity management. However it was common ground that the shares and loan notes are by their own rules not transferable, as noted by the District Judge in his Judgment, and that they could not be the subject of a transfer of property order. Therefore the District Judge directed, as submitted for by Mr. Hale, that the husband should pay the wife a lump sum or series of lump sums as and when the shares and/or loan notes were realised, such as would represent the respective specified proportions (above) of the net proceeds of any such any realisation or realisations.
This appeal was originally against the District Judge's decisions both in respect of the shares and of the loan notes. In fact however since the hearing, fresh evidence admitted by tacit agreement today shows that the vast majority of the loan notes have unexpectedly been redeemed. At paragraph 7 of Mr. Sear's Skeleton Argument, dated 18th December 2014, this is explained as follows: "…the reason for D Ltd's decision to re-finance its mezzanine debt is obvious enough, but only with the benefit of hindsight and in view of the unexpectedly strong performance of the business: the loan notes provided for interest at 12% per annum (on a 40 year term) to be rolled up until redemption and cheaper borrowing is being arranged in the market." In or about December 2014, the husband received just under £800,000 for his loan notes. This meant that after tax the wife received her 50% of them, pursuant to the District Judge's order, in the sum of £326,000. Both parties agreed to place into the school fees fund (above) a further £75,000 from their respective payments from the loan notes, with the result that each actually received £250,000. As a result of this development, Mr. Sear realistically accepts that his appeal regarding the loan notes has been overtaken by events and does not pursue it. This leaves only the shares as the subject of the appeal.
Before summarising the arguments and counter-arguments, I note that in order to succeed on this appeal the husband has to show that the...
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