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OG v AG [2020] EWFC 52

A financial remedies case taking into consideration the value of a business which will be affected by a no-deal Brexit, COVID-19 and the husband having set up a rival company.

This case concerned cross-applications by a husband (OG) and a wife (AG) for financial remedies following divorce. This was a long marriage (25 years) producing two children, aged 25 and 10. During the marriage, the parties set up a successful ducting business, 'X'. The husband worked predominantly on the production / selling and R&D side of the business and the wife predominantly on the finance / administration side. At the time of the final hearing X was valued at c. £13.8m. The trading element was valued at just under £4m. The parties had also amassed a domestic and international property portfolio in both their sole and joint names as well as in the name of X which produced rental income.

In November 2018, the husband resigned as a director of X. He stopped working for X in 2019. In February 2019, another ducting company 'AB' was incorporated. Its shareholders were the husband's father and two of his two close friends. AB was loaned significant funds by a company 'TT' incorporated in Dubai which at the same time the husband had loaned equivalent amounts to, those funds coming from sales of matrimonial property in Dubai. The husband was found to be the real owner of AB [45] – [51]. The funds loaned to TT by the husband as a result of sales of matrimonial property were added back (c. £900,000).

Covid-19 / Brexit discount
A novel issue for the court was how to deal with the asserted impact of Covid-19 and a no-deal Brexit on X. In respect of Covid-19, X was providing ducting to a range of companies impacted by the global crisis. In respect of Brexit, a significant part of the the business of X is with customers sited in the EU and is presently transacted on a tariff-free basis. As a result, if no trade agreement is reached between the UK and the EU by 31 December 2020 then there will undoubtedly be adverse consequences for X.

The wife argued that a 10% discount should be applied to both the trading and surplus assets value of X because of the economic downturn caused by the Covid-19 pandemic and the likely future disruption to be experienced on account of Brexit. The SJE who valued X agreed that a discount should be applied on due to these risks but declined to provide a figure. Mr Justice Mostyn applied a 10% discount to the value of X on the basis of Covid-19 and Brexit but only in respect of the trading value and not the value of the surplus assets.

Competitor business discount
The wife argued that the value of X (including surplus assets) be discounted by 40% because the husband had set up competitor business AB. The SJE's was that where a seller of a business refused to enter into a non-compete clause and was on the production / selling side of the business, he would likely advise them to seek a 20-40% discount in the asking price. Mr Justice Mostyn applied a 30% discount to the value due to the husband having set up AB. This discount was again only to the trading aspect of the value and not to the surplus assets.

Conduct
The wife argued that the total matrimonial assets, after the discounts relating to Covid / Brexit and AB were applied to X, should be divided two-thirds to her and one-third to the husband. The wife argued that such a departure from equality was justified on the basis of the husband's conduct: his extensive non-disclosure; setting up competitor AB; and fraudulently altering emails.

Mr Justice Mostyn considered the four scenarios in which conduct can rear its head within financial remedy proceedings:

i. Personal misconduct during the marriage or after which will only be taken into account in rare circumstances (Miller v Miller [2006] UKHL 24, [2006] 2 AC 618) and where there is a financial impact of such conduct;

ii. Add-back jurisprudence where in the rare case dissipation is clear and obvious;

iii. Litigation misconduct which may result in a litigant being severely penalised in costs but will only very rarely affect the substantive disposition;

iv. Failure to provide full and frank disclosure where the court is able to draw inferences with respect to the process of computation rather than distribution;

Mostyn J considered that the departure from equality sought by the wife was disproportionate and untenable. The 30% discount applied to the trading element of X as a result of AB would fall solely on the husband due to his conduct (£1,183,500). The husband would also be sanctioned by way of a costs order. However, Mostyn J declined to order the departure from equality sought by the wife to reflect the court's indignation at the husband's conduct during the proceedings. This would amount to a discount based on morality where the court should only apply sanction for conduct where it is financially measurable. 

Costs
The parties ran up around £1 million in costs. This, Mr Justice Mostyn found, was mostly referable to the husband's litigation conduct. However, the wife had also failed to negotiate openly and in a reasonable way after the financial picture had become largely clear post PTR (ref: para 4.4 of FPR PD28A). Mr Justice Mostyn said in respect of the wife's failure:

"It is important that I enunciate this principle loud and clear: if, once the financial landscape is clear, you do not openly negotiate reasonably, then you will likely suffer a penalty in costs. This applies whether the case is big or small, or whether it is being decided by reference to needs or sharing."

Mostyn J divided the wife's costs into two periods: (i) the shortly after the PTR; (ii) the costs between PTR and final hearing. The wife's costs in period (i) were c. £412,000. The judge had formed the view during the parties' evidence that both were difficult and confrontational characters. As a result, he did not accept that but for the husband's litigation conduct that this case would have settled. He considered in any event it would have gone to final hearing. He reduced the wife's costs in period (i) as follows:

a. Reduction of £100,000 representing the estimated "normal" costs that would accrue to such a case and to which the normal rule at FPR r.28.3(5) would apply;

b. Reduction of £40,000 as estimated costs in a s. 37 MCA application made by the wife with respect to the Dubai assets during the proceedings which was not ultimately pursued.

c. Reduction of £10,000 to represent a sanction for the wife's own non-disclosure.

The husband was ordered to pay 90% of the wife's costs (reduced per a – c above) in period (i) on an indemnity basis (£235,626).

In respect of period (ii), Mr Justice Mostyn agreed with the wife that rule at FPR r.28.3(5) should not apply and that the husband's misconduct in the first period had contaminated the second period and also that the husband had continued to be dishonest about the ownership of AB to avoid the competitor discount being applied. For this period, the husband was ordered to pay 90% of half of the wife's costs on an indemnity basis. However, from this sum Mostyn J went on to discount £50,000 in light of the wife's unreasonable and untenable open negotiation stance in this second period (PD 28A paragraph 4.4 applied).

Conclusion 
Mr Justice Mostyn considered that all other things apart, this was a paradigm case for the equal sharing principle to apply to. The marriage was long, and all the property was matrimonial. With reference to the contributions that the parties had each played within the family business, he considered these to be incommensurable: Miller v Miller at [150]; Bendix Autolite Corp v Midwesco Enterprises Inc (1988) 486 US 888 at 897.

Mostyn J divided the non-business non-pension assets 50/50. The judge deducted from the value attributable to the husband's 50% share in X (£5,353,821) the 30% discount in the trading value of X due to AB a costs sanction of £278,020 (45% of the wife's costs). The husband received in total £7,316,094 (including pension assets) or 44.7% of the total assets.

The departure from equality was £869,741. This sum, Mr Justice Mostyn explained, was the price that the husband had to pay for his conduct in setting up a competitive business and conducting the litigation so abysmally. He stated that he hoped it will serve as a lesson to any future litigant who is tempted to behave in the same way.

Summary by Rachel Cooper, barrister Coram Chambers

Read the full judgment of B (A Child) (Abduction: Habitual Residence) [2020] EWC Civ 1187 on BAILII