(Family Division, Bodey J, 20 January 2015)
Financial remedies – Shares – Determination for wife to receive 40% of shares when realised – Appeal – Whether the judge should have ordered a lump sum to achieve a clean break
The full judgment is available below.
The husband’s appeal from a decision awarding the wife 40% of his company shares when they were realised was dismissed.
The husband and wife were married for 14 years and had three children together.
In financial remedy proceedings an order was made inter alia dividing shares held by the husband in his employing pharmaceutical company 40% to the wife and 60% to the husband. The wife was to be paid by lump sum when the shares were realised. The husband appealed. He sought to substitute the order for one of a lump sum payment of £25,000 in respect of her portion of the shares to be paid once the matrimonial home was sold.
The husband’s appeal could only be successful if the judge at first instance was found to be wrong. Here, he had the benefit of hearing the parties give evidence over the course of 4 days which gave him a valuable overall feel of the case. It could not be said that he failed to follow the approach set out in
FZ v SZ and Another (Ancillary Relief: Conduct: Valuations)  1 FLR 64.
To achieve fairness it was necessary to recognise fully the tension between the fact that in this instance the wealth was in part generated by the use of the husband’s expertise built up during the marriage and in part by the expenditure of effort after the separation. Both elements were important.
The appeal was dismissed. The judge could not be criticised for his decision. He took the view that the risk of unfairness to the wife by her receiving a lump sum now in respect of the shares and then the husband later receiving a relatively much greater sum on realisation, weighed more heavily in the balance than all the well-known disadvantages and complexities of an absence of finality. This was a judgement-call he was entitled to make. The precise division of the shares was an exercise of discretion, in the absence of a scientific formula for such a calculation, carried out based on his overall knowledge of the case.
Neutral Citation Number:  EWHC 210 (Fam)
Case No. FD12D05311
IN THE HIGH COURT OF JUSTICE
Royal Courts of Justice
Date: Tuesday, 20th January 2015
MR. JUSTICE BODEY
B E T W E E N :
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(Transcript of the Handed Down Judgment
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MR. R. SEAR (of counsel) appeared on behalf of the Applicant
MR. C. HALE QC (of counsel) appeared on behalf of the Respondent.
J U D G M E N T
MR. JUSTICE BODEY:
 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 decision of the District Judge was wrong. So I record here the key passages in the judgment to which reference has been made during the hearing. There was a particular factual dispute between the parties as to whether or not, in advance of the August 2012 sale, the husband had told the wife that the next sale would probably bring in, £3million to £5million gross, £2million to £4million net. The District Judge noted that the husband denied that he had said that. He (the District Judge) said:
“I did not think that the wife’s recollection was very precise as to detail and I was not sure that her memory was clear, but I do not think that she was making things up. I thought the husband was more precise and literal and I accept he is correct in saying that the discussion did not take place exactly as the wife said…The wife may have paid more attention to figures given as possibilities than the qualifications which would have accompanied them. I do think that there must have been what I described as ‘fantasy’ discussions and it may very well be that the sort of figures given by the wife were being talked of as aspirations. I could not treat them as accurate predictions. They may turn out to be realistic. There can be no doubt that, if things go well for the company, the shares will turn out to be very valuable.”
Mr. Sear makes the point, relying on that paragraph, that no actual finding was made as to the likely sum or sums of money to be realised when the shares came to be disposed of.
 At paragraph 20 of his judgment, the District Judge cited the well-known passage in the judgment of Mr. Justice Mostyn in FZ v SZ and Another (Ancillary Relief: Conduct: Valuations)  1 FLR 64:
“If the adoption of present market value results in rough justice in some cases then that is a price worth paying in order to achieve predictability and consistency. My view is therefore that present market value should be the usual measurement of value and that fair/hope/economic values should only be used in the exceptional case. I think that serious injustice would have to be demonstrated before departure from the usual rule was justified.”
This was echoing something which I had said in CR v CR  1 FLR 323 at paragraph 30, although I stress that I was there talking about and rejecting the concept of valuing shares now on the basis of trying to project forward to a future date. I was not addressing the issue which arose before the District Judge here, namely sharing out the proceeds of sale at some future date. Having cited from FZ, the District Judge continued:
“This is a helpful statement of a simple rule to be applied to the vast generality of cases, but any case may be exceptional on its facts and the question is posed: would serious injustice be caused [ie in effect to the wife] if I were to take the present market value and disregard the future potential value?”
That was the issue which the District Judge identified for decision.
 He went on to cite from the decision of Mr. Justice Moylan in Evans v Evans  2 FLR 999. There Mr. Justice Moylan said:
“The company’s shares were generated during the marriage, but their economic value could not be realised until some years after the end of the marriage. Insofar as their realised value reflected, as it inevitably would, what had occurred since the end of the marriage, that value would in part be the product of the husband’s endeavours not the parties’ joint endeavours. Maintaining and developing the company and procuring its sale would continue to require a great deal of important work. The value in due course realised on the sale would reflect in part the husband’s post-separation endeavours. Some departure from an equal division was justified in conducting the discretionary exercise.”
Following that citation, the District Judge said:
“He (Moylan J.) went on to apply this reasoning to the facts of the case. The result was that the wife received 44% of the value of the shares and the husband 56% calculated by reference to the division of the total assets. I think this is very helpful guidance. Plainly, Mr. Justice Moylan did not feel fettered by the need to apply the present market value. The factual position is not the same, though, and I am not bound by any particular methodology.”
In saying that, the District Judge was echoing a point which he himself had made earlier in his judgment that: “There is absolutely no right or wrong answer or methodology to be applied. The aim is to achieve fairness.”
 The gravamen of the District Judge’s decision is when he said:
“The husband is the member of the senior management team. A large part of his work is preparing the company for sale. How well he does this must have some bearing on the ultimate success of the project and hence the value of the shares. It is quite impossible to quantify, but I think it right that I take this into account. I have no doubt that not to recognise that the wife should have some share in the uncertain outcomes of the value of the shares would create serious injustice. To some extent the husband recognises this in his willingness to accept that she might have some sharing entitlement. I do not think that a lump sum payment now in ignorance of the eventual value would be appropriate in the absence of agreement.”
At paragraph 23, he continued:
“The basic scheme for involvement in a private equity project came during the parties’ cohabitation. The price of the shares was paid from the husband’s bank account at a time when the parties were together. The opportunity for the husband to increase the value of the shares as a result of making the merger a success and sharing in the proceeds does arise after separation and, in my view, reinforces the case for a differential apportionment of the value of the shares [as compared to the loan notes] when they are eventually divided.”
Last, as to quantum, the District Judge said this:
“I think that as a member of the management team the husband’s involvement is significant. He was retained after the merger when others were not kept on. It seems self-evident that his work will be important if not determinative. What is more, it is likely to continue for several years, three, five or more is unknown (sic). There is no easy methodology. The discount applied by Moylan J. in Evans does not really help me as he was looking at an overall departure from equality. The husband is only one member of the senior management team. He said himself in a different context that he is ‘no more than a passenger in the bigger transaction’. I think that to count a third as his contribution [to whatever increase the shares might achieve] would be too high. The wife’s needs are largely catered for by the existing assets. I think that this is about sharing an asset that should be regarded as having a significant matrimonial component. I think that fairness requires that the husband should receive 60% of the net value of the shares when they are realised. Doing the best I can, this reflects his continuing contribution to their eventual value.”
 It is against the background of these various key passages that the submissions on the appeal have been made. Mr. Sear’s arguments in support of the appeal can I think be distilled down to the following. The District Judge should have followed the conventional route of taking the current market value of the H Ltd shares and should have dealt with them now, i.e. as at the March 2014 hearing. He (the District Judge) erred when he failed to adopt the above guidance of Mr. Justice Mostyn in Re FZ, as there were no exceptional circumstances here justifying a departure from the conventional approach of dealing at the time with the current value. Although the District Judge spoke of ‘injustice’ to the wife if he were to do that (ie deal now with current value) that was, says Mr. Sear, illogical since he (the District Judge) found the wife’s needs to be largely met. Moreover, the District Judge wrongly declined to amplify what he meant by an ‘injustice’ to the wife when he was asked to do so. Mr. Sear submits further that the District Judge misunderstood and misapplied the decision of Mr. Justice Moylan in Evans. It is suggested that he, the District Judge, followed over-closely the percentage adopted in Evans and that he demonstrated a misunderstanding of the factual differences between Evans and this case, because he said that “…plainly Mr. Justice Moylan did not feel fettered by the need to apply the present market value”. Mr. Sear points out that in fact the share valuation in Evans was merely an indicative one whereas here Mr. Dodge had prepared a proper valuation, with the result that how Mr. Justice Moylan dealt with the Evans case was and is irrelevant to this case.
 Linked with these submissions is the argument by Mr. Sear that the District Judge’s order avoidably and wrongly failed to provide the parties with a clean break, which should always be the court’s aim. Here the order below links the parties financially for an indefinite period of time and may, says Mr. Sear, create computational or interpretative difficulties in the future, especially if the realisation deal is such as to require a further ‘rolling over’ of some or all of the proceeds. That issue was, incidentally, clarified by the District Judge at a drafting hearing before him on 6th May 2014, when he made it clear that he intended the wife’s lump sum order to roll over too if the realisation of the husband’s shares required such a roll over. Last, if I were not with him on the above arguments, Mr. Sear submits that the quantification of 40% in the wife’s favour in relation to the H Ltd shares pays insufficient regard to the husband’s post-separation and indeed post-proceedings endeavours which the husband will make by way of influencing and hopefully ‘growing’ the future value of the shares. It is an arbitrary percentage merely plucked out of the air and should have been much lower.
 Mr. Hale submits that far from being wrong, the District Judge was entirely right. It is common ground here that there are restrictions on dealings with the shares as was recognised in Mr. Sear’s Skeleton Argument of 22nd May 2014 that they are ‘not currently susceptible to a property adjustment order’. That, says Mr. Hale, is a significantly unusual feature. But for it, he submits that this would have been a clear case for a transfer of a fair proportion of the shares from the husband to the wife, thereby tying her into the fortunes of the shares as and when realised. He argues that the ‘seed corn’ of the present value of the shares clearly relates back to before the marriage breakdown, as per the timeline above, and that, as is common ground, the money came from ‘the pocket’ of the marriage. The District Judge, it is said, would have been well aware of the track-record whereby the value of the shares purchased in 2010 turned out to be worth greatly more within quite a short period of time and, in any event, the ‘proof of the pudding is in the eating’ since the unexpected redemption of the loan notes not only happened sooner rather than later but also enhanced the wife’s situation (alongside the husband’s) to a far greater extent than under the husband’s offer. Under that offer the wife would have received £175,000 in respect of the loan notes, whereas by virtue of ‘hanging on in’ she received £326,000 under the District Judge’s order. Mr. Dodge’s 2013 report, whilst stressing that timescales cannot be predicted with any accuracy, states that ‘…typically in the context of normal private equity holding periods [an exit event] might be in the region of three to five years from now’. He says later in the report ‘…it is certainly likely that G Ltd will have realised their investment in the company [H Ltd] long before 2052, probably in three to five years’. So, says Mr. Hale, the allegedly indefinite nature of the financial linkage of the parties (asserted by Mr Sear) needs to be seen in that context. Last he relies on the familiar passages from G v G  2 All ER 225 and Piglowska v Piglowski  1 FLR 1360 about the nature of the reviewing process.
 The case has been well argued by both Counsel and there is clearly much force in each side’s submissions. It does not need to be said that the court tries to achieve finality. This is set out in the statute and in numerous authorities. Where current value is known, it is very unusual indeed not to achieve what is often called ‘closure’, whether by way of a lump sum now, by some form of transfer of property order, or by some other route. But this is not a rule or a strait-jacket: the circumstances are unusual where a court is currently unable to deal with shares in a company by way of transfer. The husband’s own approach implicitly recognised that the wife had a good claim to share the benefit of the shares, based on the background of how they were purchased, albeit that such a claim was one which on his case should be settled now by a finite lump sum (£25,000) rather than being carried forward into the future based on a percentage (40%). Mr. Sear put it in this way in his Skeleton Argument for leave to appeal: “…the husband recognised at the final hearing, as he does now, that the wife may have some sharing entitlement in respect of this post-separation accrual short of an equal sharing entitlement.” [Mr Sear’s emphasis].
 Here the District Judge was very well aware of the competing arguments, which I have no doubt were deployed before him as skilfully as they have been before me. He had the advantage of having seen and heard the entire case played out in front of him over three or four days, which included the use of five lever arch files and the benefit of hearing the parties’ evidence and their being cross examined. This exposure gives a valuable overall feel about a case, which a court sitting in an appellate capacity struggles to achieve when faced with the relatively more lifeless arguments on appeal. So interference, even on a point of approach such as arises here, must be looked at with caution. There was a judgement-call built into the decisions of the District Judge under appeal which required him to have a feel for the likely future outcomes and for overall fairness in the context of the whole case, including his bearing in mind the other aspects of his award.
19] In spite of Mr. Sear’s able arguments, I have not in the result been persuaded that the District Judge failed to ‘follow’ FZ or to take on board Mr. Justice Mostyn’s guidance. It is trite to say that every case is different and requires a different balancing of the section 25 factors in pursuit of a fair outcome. This is the virtue (in spite of its disadvantages) of a system which enables the result to be tailored to the particular facts of the specific case. The inability to transfer some of the husband’s shares to the wife in recognition of the origin of those shares during the currency of the marriage was an unusual feature which the District Judge was entitled to bear in mind. His award suggests clearly enough that he would have transferred a proportion of the shares to the wife if he could have done so: and, given the husband’s own case about paying a lump sum referable to his holding, it is difficult to see that he (the husband) could reasonably have complained.
 Nor do I consider that the District Judge misunderstood or misapplied the case of Evans. His judgment makes it quite clear that he recognised the difference in the facts as between that case and this. His observation that Mr. Justice Moylan did not feel himself to be ‘fettered by any need to take the present market value of the shares’ was a mere statement of fact. He did not go on to say “…and therefore I do not need to do so either”.
 In short it seems to me that the District Judge was effectively taking his cue from Mr. Justice Coleridge who in B v B  EWHC 1232 (fam), said on this topic:
“Fairness is what I am trying to achieve and both sides make sound points. Fairness…is not just about arithmetic and precision of calculation, but a broad recognition by the court, after considering all the factors, of the value of the claimant's (in this case the wife's) role in the whole marital partnership. The industry standard/general rule that the date of trial is the date when both the categorisation of the pot and its value is assessed, should not easily be circumvented. The proposition that merely because an asset comes into existence after the date of separation it should be excluded is far too simplistic and is not appropriate when, as here, a respondent's efforts are merely a seamless continuum of similar pre-separation activity and there is no obvious delay in the proceedings. It is as if the husband is banking his surplus income during the time between separation and trial. There is no absolutely right or wrong answer or methodology to be applied in this situation. To achieve fairness it is necessary to recognise fully the tension between the fact that the wealth was in part generated by the use of expertise built up during the marriage and in part by the expenditure of effort after the separation. Both elements are important. I do not think this part of the case can be analysed precisely either by reference to the time involved in each phase of the process and/or its relative importance. It is a product of both to some extent. But I make the general observation that the further into the future, post separation, the asset is created or achieves ascertainable value the less, it seems to me, it can be sensibly categorised as ‘matrimonial’. Beyond that, drilling down into the deepest subterranean springs of the arguments adds nothing to the achievement of fairness.”
 The District Judge’s decision amounted in effect to his taking the view that the risk of unfairness to the wife by (a) her receiving a lump sum now in respect of the shares and then (b) the husband later receiving a relatively much greater sum on realisation, weighed more heavily in the balance than all the well-known disadvantages and complexities (to which the District Judge alluded) of an absence of finality. This was a judgement-call. In any event this is not a case where there is otherwise a clean break. There was and is ongoing spousal maintenance; ongoing children’s maintenance for a long time going forward; and a need to manage the school fees fund. As regards the District Judge’s ‘plucking out of the air’ the 40% figure, there is plainly no scientific way, of evaluating the worth of the post-separation ‘growing’ of a matrimonial asset. It has to be an exercise of discretion. That is what the District Judge carried out based on his overall knowledge of the case and he cannot be criticised for his conclusion.
 For these reasons, I am satisfied that the decision of District Judge Robinson has not been shown to be wrong and so this appeal must be dismissed.