Cowan v Cowan
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE THORPE,LORD JUSTICE ROBERT WALKER,LORD JUSTICE MANCE |
| Judgment Date | 14 May 2001 |
| Neutral Citation | [2001] EWCA Civ 679 |
| Docket Number | B1/2000/2854 FAFMI |
| Court | Court of Appeal (Civil Division) |
| Date | 14 May 2001 |
[2001] EWCA Civ 679
Lord Justice Thorpe
Lord Justice Robert Walker and
Lord Justice Mance
B1/2000/2854 FAFMI
IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE —FAMILY DIVISION
(MR JUSTICE SINGER)
Royal Courts of Justice
Strand, London WC2A 2LL
MISS FLORENCE BARON QC and SIMON GILL (instructed by Lucas McMullan Jacobs of London E10 7AA) appeared on behalf of the appellant.
MARTIN POINTER QC and VALENTINE LE GRICE (instructed by Foreman Laws of Hitchin SG5 1JW) appeared on behalf of the respondent.
The Facts
Mr and Mrs Cowan, the parties to this appeal, are respectively 63 and 61 years of age. For convenience I will hereafter call them the husband and the wife. They met when they were still in their teens. At the date of their marriage on 2 February 1959 they were aged 21 and 19 respectively. Both worked for English Electric, the husband as a tool draughtsman and the wife as a tracer. Two months after the marriage they moved into a council house in Stevenage. On 7 July 1959 Andrew, their first son, was born. In 1961 the husband set up his own business as a draughtsman in partnership with a friend. On 4 February 1963 their second son, Timothy, was born. In 1963 they had prospered to the extent of purchasing a house in Stevenage for £3,000. In about 1965 the couple developed a second source of income selling polythene for damp courses into the building trade. The latter was very much a family business and at the trial there was much dispute as to their respective roles. In the mid 1960s the husband launched a company, Hanmere Polythene Limited and at about the same time the husband and his younger brother Jeffrey joined forces. There were three brothers in the Cowan family, Jeffrey being two years younger than the husband and Graham being some seven years younger than the husband. Shares in Hanmere were originally issued as to 51% to the husband and as to 49% to Jeffrey's wife, as his nominee. In the late 1960s Hanmere began the manufacture of polythene bags. At about this period 5% of Jeffrey's share in Hanmere was transferred to the wife and at the same time his remaining shareholding went into his own name. Thereafter the story is one of almost unchecked progress to success in business and with it affluence. This was reflected both in moves to finer homes and to the creation of complex tax avoidance schemes. It is unnecessary for the purposes of this judgment to record the detail of Jersey trusts, Swiss trusts, Panamanian companies and Liechtenstein anstalts. Equally it is unnecessary to detail the moves save for the acquisition in 1976 of a country house, Hadham Grange. The purchase price was £75,000. Its agreed value in 2000 was £1,115,000. No doubt this increase is partly explained by substantial expenditure on improvements over the 25 years that it has been the Cowan's family home. At some stage in the mid or early 1970s the wife ceased to play any part in the business. No doubt she was fully occupied with the home and the needs of the children.
In February 1997 the husband launched a new venture HD Plastics Limited which commenced trading in 1979. At about the same time he also launched Halcyon Plastics Limited. HD stands for high density which leads me to a simple explanation of the husband's accumulation of a fortune offered by Mr Pointer QC during the course of his submissions. The husband had perceived that buying polythene from a manufacturing source and selling it on at a margin was a trade of limited potential. It was his genius to perceive the potential of bin liners which would revolutionise the collection and disposal of household waste. High density thin plastic he perceived to be particularly fit for the purpose. He also conceived the idea of packing the liners in a roll for stocking supermarket shelves. His final successful innovation was the introduction of drawstrings for closing the bags when filled. The companies specialised in supplying both local authorities and supermarkets. The contribution of Jeffrey to what is a remarkable success story was comparatively slight. It seems that in his mid thirties Jeffrey developed a taste for golf. In Hanmere he soon earned the label of the golfing director, playing little or any active part in the business after 1979. He made no active contribution to HD Plastics or Halcyon, although start-up capital for these companies was said to derive from Hanmere Limited. However Halcyon was essentially a joint venture between the husband and Graham and it was not in dispute that the husband held only 51% of Halcyon, although there was contention as to whether the remaining 49% belonged to Graham or whether the minority shareholding was split between him and Jeffrey in proportions 30 to 19.
The success in business, magnified by the avoidance and evasion of tax, enabled the husband and the wife to develop a very high standard of living. In the mid 1980s the husband and the wife acquired a winter home in the Virgin Islands, Flag Hill, at a cost, after improvements, of about $2M. Jeffrey and his family were provided with a home on a golfing development in the Canary Islands at a cost of about £240,000. All this was financed through the offshore companies. At about this time the husband formed Inca Investment Properties Limited to own factory premises in Biggleswade into which the operations of HD Plastics were moved.
All this seemingly effortless success ran into rough waters in the 1990s. In 1992 the husband launched a new product, plastic bags with a zip closure, through a company that he had incorporated years previously named Hanlex Limited. This venture sustained substantial losses over the ensuing years until the relatively recent closure of the business. These losses were borne, at least substantially, by Hanmere and led to some disagreement between the husband and Jeffrey, whose income continues to be derived from Hanmere. Of greater significance is the filing of a divorce petition by the wife in 1992, although it was not ultimately served until some six years later. Difficulties in the marriage were contained until March 1994 when the parties separated. The husband moved out of Hadham Grange, renting a flat in London. The Caribbean winter home was put on the market. It is probably significant that shortly before the separation the Inland Revenue launched an investigation into the activities of the husband, his companies and the offshore superstructure. Following the separation the husband paid the wife a monthly allowance of £6,600 increased to £8,900 in September 1995 when the wife acquired a three bedroom flat in Florida for her use as a winter home. The husband also provided £16,000 towards the venture. It was in fact a purchase on mortgage although presented to the husband as a tenancy.
In order to defend himself against the Inland Revenue investigations the husband instructed Foreman Laws who in turn instructed Coopers and Lybrand who jointly reported to the Inland Revenue in February 1996. Their strategy was to present the husband as the single target for the Inland Revenue's arrows with the aim of achieving a sub-standard settlement. A compromise was reached in December 1996. In broad terms the husband agreed to dismantle the entire offshore structure, to pay the Revenue the sum of £2,561,000 and to distribute the shares in HD, Halcyon, Hanlex and Inca (formerly invested in the Jersey trust) between himself and his two brothers. In fact the husband's solicitor, Mr Foreman, issued the shares in these four companies in one parcel of 80% and another of 20%. This was to facilitate a division between the brothers. It was subsequently said that it was by oversight that the minority shareholding in Halcyon was put at 20% only. Whilst Jeffrey's entitlement to a 20% share in HD and Inca was to be heavily disputed, it was never an issue that the husband's shareholding in Halcyon did not exceed 51%.
Meanwhile HD Plastics was running into difficulties. The husband contemplated the purchase of a complementary manufacturer, Baco Consumer Products Limited (a subsidiary of British Aluminium Limited). In the event it was Baco that acquired HD Plastics. The husband negotiated a deal the subject of a comprehensive shareholders agreement dated 10 October 1997. The basic terms were that the consolidated companies should be marketed as a whole within five years, if possible. In consideration for his shareholding in HD Plastics the husband received loan notes to the value of £4,429,000 repayable at Baco's option or on sale or in equal instalments between 2005 and 2009. In the interim the loan notes bore interest at 5%. In addition the husband obtained 19% of the equity in Baco. Shortly after completing this deal the husband bought a flat in Hampstead for about £0.5M financed by a very substantial building society mortgage.
The payment of the agreed sum to the Inland Revenue plainly compounded the husband's problems. In February 1997 he raised £635,000: £200,000 from the Jersey trust and the balance drawn from HD Plastics or Inca. In March 1997 £319,000 was paid: £120,000 from Hanlex and the balance from the Swiss trust. In December 1997 the husband drew down his capital entitlement under his pension scheme, £481,000, and the capital entitlement under Jeffrey's pension scheme, £200,000. At the end of 1998 the final instalment of £561,000 was due. The Inland Revenue accepted £50,000 from the husband and a charge on the proceeds of sale of Flag Hill, the Virgin Island home. The husband had agreed a sale at $1,100,000 in September 1998...
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