Financial Remedies
July 2022

05 September 2022
The application of the wife ("W") for financial remedy orders following the termination of her marriage to the husband ("H") in which Sir Jonathan Cohen resolves issues in relation to the valuation of the business.
DE v FE [2022] EWFC 71

Background: W made an application for financial remedy orders following the termination of her marriage to H. Both were working in banking (W in New York; H in London). By the time their relationship started in 2006, H was separated from his first wife and living in London and in December 2007 W relocated to England. For a period of some 18 – 24 months the parties cohabited in H's former matrimonial home, H having bought out the interest of his first wife. In autumn 2009 they moved to West London and the property remained rented out. W claimed that because the property was their first home together and because she dealt with the paperwork of the rental the property became matrimonialised. In the scheme of the parties' finances this was a relatively trivial issue which Sir Jonathan Cohen resolved by finding that 30% of the value should be treated as matrimonial and 70% to be the sole property of H.

The parties remained in rented accommodation until October 2013 when they purchased a large property in Kensington in joint names. In early 2016 H left his employment and with 2 colleagues set up his own business, “ABC”. W was combining her work as a trader with being the primary carer (assisted by staff) of two small children and with a baby being born in February 2017. In November 2017 H admitted the existence of an adulterous affair and at W's insistence he immediately left the matrimonial home and moved into a nearby hotel.

H sought to argue that the very large sum of money that the business made in its first years of operation came about as a result of his efforts post separation. This was hotly contested by W.

It was only in or around October 2018 that they both came to the conclusion that the marriage did not have a future. Sir Jonathan Cohen did not accept H's argument that the wealth his new business acquired at the end of 2017 and early 2018 was referable to a period after the end of the marital partnership.

In March 2018 H's mother died and H and his sister each inherited half her estate. W conceded that this should be treated as non-matrimonial. However, in February 2019 H used $2.4m that he had received from a business transaction to purchase his sister's share in the property and in doing so used what Sir Jonathan Cohen found to be matrimonial money, with the consequence that half the property can properly be described as a matrimonial asset.

W remains living in the former matrimonial home. The children are with her for 9 nights per fortnight and with H for 5 nights per fortnight. H seeks a more equal division. It is common ground between the parties that the home should be transferred to W. H moved to a substantial rented property near the matrimonial home with his fiancée.

The value of ABC: The battleground in this case has largely been the value to be ascribed to H's interest in the business. By far the biggest of the issues is whether or not an uplift to the trading value of the business should be made to allow for the possibility/probability of what might be described as a "super-receipt" as happened in early 2018.

In March 2018 ABC entered into an agreement with TC which is described as being "The Confirmation and Termination Agreement". In return for payment of $150m to ABC by TC, all the continuing obligations of ABC under the services agreement came to an end.

W argues that this payment of $150m, along with the first payment of $30m received in June 2017, was a success fee paid to ABC for setting up the facility with the sovereign wealth fund. H says on the contrary, that it was simply an amortisation of the remaining 9 years of the contract.

W says that it is central to the question of whether or not there should be an uplift in the valuation of the business. Unfortunately, since 2020 when the pandemic struck, the business has experienced significant challenges. ABC had to sell its shares in the company at a very significant loss of $60m, which with other associated debts meant a loss of closer to $70m. Both H and his co-founder had made substantial operating loans to ABC and H's loan now stands at $20.2m.

Sir Jonathan Cohen identified four issues in relation to the valuation of the business to resolve:

i) Should the upside addition of $20.914m be removed from the valuation?

ii) ABC received a significant shareholding in a quoted company "Q" by way of payment. Should the value attributed to those shares in the valuation be discounted for the reduction of value in the shares since the SJE valuation took place?

iii) When the leisure industry crisis was at its worst and an injection of funds was required into the business, H's business partner paid in a little over $20m in two tranches to the business which was unmatched by H. I have to determine whether this should be treated as a priority debt, as claimed, before H's interest is valued?

iv) Should transaction costs in relation to the sale of various interests of the business in realisation be allowed for? Exactly the same issue relates to various investments made by H in his name.

The Evidence of the SJE: Mr Bezant carried out two reports on the valuation of the business and related issues. The first was dated September 2020 and the second April 2022. The second valuation was markedly lower than the first. Sir Jonathan Cohen cautioned that the valuation of a private company is a highly speculative business.

The Upside Valuation: This was by far the biggest of the contentious issues. Sir Jonathan Cohen accepted the evidence of Mr Bezant that there has to be some reflection of upside. Mr Bezant's report explained how he arrived at the figure of $20.9m uplift and his calculations, as opposed to his assumptions, have not been challenged.

H says that this payment was so out of the ordinary and unrepeated that it skews the value of the business to reflect any assumption that it will ever happen again.

Sir Jonathan Cohen concluded that Mr Bezant's figure is too high.

Sir Jonathan Cohen agreed with H - that he can do no better than to take the current share price of Q Ltd which is at $6 per share, stating “when I have a current open market price, I should use it”. He referred to what Mostyn J said in E v L [2021] EWFC 60 (Fam) at paragraph 63: "Blinding oneself to the knowledge of subsequent events, while conforming to the purity of valuation theory, obviously risks serious injustice".

The effect of all these findings is to produce a valuation of H's interest in ABC at $24m (as Sir Jonathan Cohen finds it to be) which translates into a value of £19.16m.

The Asset Schedule: Sir Jonathan Cohen made the following additional comments:

(i) On my findings, before redistribution the property assets should properly be seen as being held as to £4.75m (H) and £3.43m (W). This provides for W's modest interest in H's pre-marital home and H's use of matrimonial funds to buy out his sister's interest in the Middle Eastern property in addition to the jointly owned FMH.

(ii) H's costs far exceed those of W. He has spent some £2.15m and she some £1.3m.

(iii) On that basis H's other non-business assets inclusive of his pension fund of just over £1m net of substantial liabilities amount to £312,414. W's other assets inclusive of her slightly smaller pension fund total £1,328,230.

(iv) I find that H's business interests amount to £37.365m, his interest in ABC being slightly more valuable than the value of his personal shares.

(v) I have reduced the amount of the co-founder's priority loan by the $3.3m recently paid to him by ABC. I accept that this might be matched by a corresponding reduction in another asset of the company. I can see no benefit, however, in leaving the loan in the schedule at a figure which is incorrect. Whilst H may feel this is the wrong approach, it will make only a relatively modest difference to the value of his interest and is more than matched by the reduction I have allowed for in the value of his Q shares. It illustrates the fragility of a valuation.

Post Separation Endeavour: H's case is that there should be a significant discount from an equal division of the value of the business to reflect his efforts post-separation. W says that there should be no or minimal discount in respect of his endeavour to date as he has been trading with what was her share of the liquid money available following the termination payment, and that there should only be a small discount to reflect his work over the next 5 years until payment is made.

The Parties' Proposals: On the basis that the FMH is transferred to W, H offers a payment of £4.1m spread over 4 years with interest on the unpaid elements paid at a rate of 2.5% pa. He makes no further offer in respect of the children. He calculates his offer as representing a 70/30 split.

W proposes that she should receive, in addition to the FMH, a lump sum of a little over £15m payable over 5 years with interest at the rate of 1% above base rate and earlier payment in the event of certain circumstances set out in her offer. She calculates this as being a 40/60 share of the assets (with H receiving the larger sum to reflect his continuing endeavour, pre-marital assets, and the fact that he is taking the risk-laden assets). She seeks maintenance for the benefit of the children at the rate of £50,000pa per child with CPI increases.

Liquidity: There is next to no liquidity in the business or in H's personal shareholding. Sir Jonathan Cohen identified this as a point of significance. If value is to be extracted from the company, it can only be done by H remaining in the business for what is likely to be a significant period of time.

Resolution: Sir Jonathan Cohen identified the requirement to strike a balance bearing in mind important points on both sides:

i) On behalf of W it is rightly said that H's interest in the business reflects what was built up during the marriage.

ii) Whilst H will be working hard in the business he will also be earning a very good income. Mr Bezant's notional calculation of an income of $5m pa far exceeds what H has actually received over the last few years, as Mr Bezant readily accepts; but, I find it hard to believe that in one way or another H is likely to be drawing much less than $2m pa from the business bearing in mind his track history of receipts over his business life.

iii) In 2018 H had very substantial liquid capital and would have been in the position to make payment to W of her award. Although W puts weight on this point, I do not regard it as of such significance as it was always the intention that the money, or most of it, would be put into ABC.

Sir Jonathan Cohen accepted that W's sharing in the business assets must be discounted to reflect the illiquidity and risk attached to the assets.

Sir Jonathan Cohen concluded that he did not think that it would be right to leave W with less than a one-third share of the assets and nor would it be fair for H to have to pay more than £10m by way of lump sum (36.5% of the total) for the reasons given. After much thought he considered that the appropriate award is one that leaves W with 35% of the total assets. This will require a payment to her of a lump sum rounded to £9.3m. This unequal division properly reflects the benefit of the cash that she will receive while H continues his efforts to build up the business.

Nominal Spousal Maintenance: In Sir Jonathan Cohen’s judgement he found that it is proper to make a nominal order but in the anticipation that it is to be activated only in the event of W becoming unable to work. It will be dismissed upon payment of the lump sum in full.

Child Maintenance: H should pay child maintenance at the rate of £25,000 pa per child. Credit is to be given for any payments made via CMS. The payment approximates to the cost of the nanny.

Mr Justice Cobb refused the husband’s application for Rescission of an order on 16 August 2021.
NP v TP [2022] EWFC 78

Background: H’s application (20 October 2021) is made under section 31F(6) of the Matrimonial and Family Proceedings Act 1984 (‘MFPA 1984’). H seeks the rescission of part of an order which Mr Justice Cobb made on 16 August 2021 by which he directed that the stay on W’s divorce petition issued in this country in February 2020 be lifted. He made this order having found as a fact that the English Court was the court first seised of divorce process. He found then that the divorce petition was “lodged” with the English Court on 12 January 2020, several weeks before the husband’s petition had been lodged in the courts of Bulgaria (4 February 2020).

H sought to persuade the court at this hearing that evidence which has recently come to light, and which was not before the court in July 2021 when Mr Justice Cobb made that determination, undermines the factual basis of his finding.

The proceedings between H and W are extremely contentious. The parties have been litigating for more than 2 years, in England and Bulgaria, principally over issues of jurisdiction and interim relief concerning the dissolution of the marriage and arrangements for their child. There is little to show for their efforts. Neither party has shown any real restraint in how they have placed material before the court; they have been indifferent to court-imposed timetables and/or restrictions on the volume of documentary material lodged, and have shown questionable focus on the actual issues.

The 2021 Divorce Judgment: [2021] EWHC 2306.

To set a context for this decision, Mr Justice Cobb returned first to the 2021 Divorce judgement which he delivered on 16 August 2021. That judgment set out his reasons for finding that the wife had lodged her petition for divorce first in time, and that the courts of England and Wales were therefore first ‘seised’.

For reasons which he summarised at §18 of the 2021 Divorce judgment, P (Discharge of Passport Order) (Rev 2) [2020] EWHC 3009 (Fam) (06 November 2020) is a ‘legacy’ case to which the provisions of Council Regulation 2201/2003 (‘BIIR’) continue to apply. At §24 of the 2021 Divorce judgment, he set out Article 16 BIIR:

“A court shall be deemed to be seised:

(a) at the time when the document instituting the proceedings or an equivalent document is lodged with the court, provided that the applicant has not subsequently failed to take the steps he was required to take to have service effected on the respondent;


(b) if the document has to be served before being lodged with the court, at the time when it is received by the authority responsible for service, provided that the applicant has not subsequently failed to take the steps he was required to take to have the document lodged with the court.”

Additionally, at §25 of the 2021 Divorce judgment, he referenced Article 19 of BIIR, and then the decision of the CJEU in MH v MH (Case C-173/16) [2017] ILPr 23, EU:C:2016:542, 503.

At §50(iii)(a) of the 2021 Divorce judgment, Mr Justice Cobb concluded: “England is the court first seised of divorce process; the divorce petition was lodged with the court on 12 January 2020. This conclusion has separately been reached by the Bulgarian Court, who will be invited in the circumstances to decline jurisdiction now in accordance with Article 19(3) BIIR;”

The new information: Since Mr Justice Cobb’s ruling in August 2021, both H and his Counsel had jointly and individually made extensive enquiries to establish with greater specificity the manner in which the wife’s petition for divorce was processed in this country. They plainly sought evidence which (a) would explain the anomaly of two petitions apparently being issued in the English Court, and (b) would unsettle Mr Justice Cobb’s finding that the wife’s divorce petition was lodged (within the meaning of Article 16 BIIR) on 12 January 2020. They have obtained copies of most of the documents which were contained in the Family Court file, and with Mr Justice Cobb’s permission they have obtained further printouts from the FamilyMan system (the Family Court’s Case Management System).

Mr Justice Cobb pointed out that it remains evident that, in spite of the considerable additional material now before the court, there are still some gaps in the documentary archive.

Mr Justice Cobb prepared a chronology and incorporate it into this judgment.

Legal considerations: There are two specific legal issues in play, the first procedural, the second substantive:

i) How should the court exercise its jurisdiction under section 31F(6) MFPA 1984?

ii) Is there anything in the caselaw relevant to when a court is first seised which is particularly engaged on the facts as they now appear?

Discussion and conclusion: Mr Justice Cobb, having reviewed the new evidential material, and heard more extensive argument on the issue of seisin at this hearing, remained firmly of the view that the English Court was seised of the divorce process on 12 January 2020. H has failed to demonstrate any misstatement of the facts on which the original decision was based.

First, it remains clear that the wife lodged her petition for divorce on 12 January 2020; she made payment of the relevant fee on that day. The CTSC later confirmed (despite the various inconsistent messages) that the wife started her divorce process on 12 January 2020 (e-mail 5 May 2020). In Mr Justice Cobb’s finding this is the one and only petition lodged in this country and is the same petition which was the subject of the stay which he earlier lifted, eighteen months later.

Secondly, in spite of the more extensive material available from the court file, Mr Justice Cobb was satisfied that there was no specific step in the divorce process which the wife failed to take. The ‘old’ [9] Part 7 of the FPR 2010, which were in force at the material time, contains no specific timeframe, nor other specific step, with which it could be said that the wife had failed to comply. Even if as a matter of fact the wife asked the CTSC to put the divorce process ‘on hold’ for a short time on the 13th January and/or 4th February, she could not be said to have "failed" to take the "required" step to effect service on the husband. As in Thum (Thum v Thum [2019] EWFC 25 (16 April 2019)), in the absence of evidence that the wife had failed to take a specific required step to prosecute her petition, it is not necessary to investigate her reasons for delaying.

Thirdly, insofar as there were delays in the service on the husband, in this judgment these were not attributable to any culpability on the part of the wife. Mr Justice Cobb did not find, furthermore, that over the period between 12 January and 19 February she was responsible of any abuse of the court’s due process.

Mr Justice Cobb rejected Mr Birch’s argument on behalf of the husband that the wife’s delay in serving the husband constituted a ‘failure’ to take the relevant step; this argument was effectively dismantled in Thum (see §36 of Thum (Thum v Thum [2019] EWFC 25 (16 April 2019))). As pointed out by Moylan LJ in that case, if this argument were to be correct then the court would not be seised until, potentially, service was effected; this would radically alter the meaning and effect of the proviso in Article 16(1)(a). Insofar as the delays were occasioned by the problems over the format in which the marriage certificate was submitted, Mr Justice Cobb conclude that (a) this did not represent culpable failure on the part of the wife to take steps to serve the petition, and (b) the issue was in any event resolved by 28 January 2020. If the issue of the confidential address impeded the ability of the CTSC to process the petition for service, this was not the fault of the wife.

In his earlier judgment, Mr Justice Cobb had referenced the decision of Judge Kostadinova in Bulgaria and cited extensively from her judgment. Mr Justice Cobb remained of the view that this analysis was correct. The husband appealed that decision in the Bulgarian Court. The Bulgarian Appeal Court rejected his appeal on 4 February 2022.

Mr Justice Cobb refused the husband’s application.

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