Financial Remedies
October 2023

Overview:

The case involved wife’s application to adduce evidence from a second expert regarding valuation of the business, following a single joint expert valuation. Known as a Daniels v Walker application.

Background:

The parties married in 2007 and separated in November 2019. H and a business partner founded a software company which they held in equal shares. In 2014, H transferred 30% of his shareholding to W. In early 2022, the business was sold to private equity investors. H and W received a total of about £35m gross for their combined stakes, comprising a mixture of (i) cash, (ii) loan notes, and (iii) shares in the purchasing company.

Upon separation the parties were able to agree a division of non-business assets, including transfer of the FMH to W, but did not reach agreement about the business interests.

On 25 April 2023, H made an application for a single joint expert report from Grant Thornton as to the value of the business upon separation in November 2019. Consideration was to be given to the value of the business and whether the business increased in value between separation and sale.

Contrary to Mostyn J’s observations in E v L [2021] EWFC 60, the basis of the valuation was to be on the "present day approach" whereby the valuer would transport himself to November 2019 and reach a conclusion on the figures then available without reference to actual figures thereafter.

In E v L, Mostyn J concluded that a realistic valuation must be based on actual figures (the "hindsight approach") rather than the "present day approach" which adopts predicted figures and ignores subsequent events.

Grant Thornton concluded:

i) In the main report, that the value of the parties' combined interests in November 2019 was about £14.1m gross on the "present day approach" (compared to £35m on sale a little over two years later).

ii) In Replies to Part 25 questions, that the value of the parties' combined interests in November 2019 was about £18.9m on the "hindsight approach" (compared to £35m on sale a little over two years later).

On 10th October 2023, W issued a Part 25, Daniels v Walker application. She had instructed her own expert from Longworth Forensic Accounting. The experts valued the parties’ combined interest in November 2019, applying the "hindsight approach", of about £20.5m gross.

The difference between the ‘hindsight approach’ taken by both experts is £1.6m (£18.9m v £20.5m).

Peel J undertook an analysis of the relevant law on Daniels v Walker applications at paras 25–28. The analysis considers the definition of ‘necessary’.

The law on Daniels v Walker

The starting point for a Daniels v Walker application, is FPR 2010 25.4:

25.4—

(1) This rule applies to proceedings other than children proceedings.

(2) A person may not without the permission of the court put expert evidence (in any form) before the court.

(3) The court may give permission as mentioned in paragraph (2) only if the court is of the opinion that the expert evidence is necessary to assist the court to resolve the proceedings".

The party seeking to adduce expert evidence of their own, notwithstanding the fact that a single joint expert has already reported, must advance reasons which are not fanciful for doing so.

It will then be for the court to decide, in the exercise of its discretion, whether to permit the party to adduce such further evidence. In exercising that discretion, the court will have regard to all the circumstances of the case,

Held

The application failed for the following reasons:

1. The application was brought too late before final hearing. Peel J noted that it was not possible fairly to accede to the application without jeopardising justice to H and the case as a whole. H would have very little time between now and the trial to mount a challenge to W's proposed expert report.
2. It was unclear whether the experts would be able to answer questions, meet and prepare a schedule of areas of agreement/disagreement before the trial.
3. There was nothing preventing W from crossing examining the single joint expert on the issues raised by her expert. W’s expert could remain as a shadow accountant to assist.
4. The historic valuation is one factor amongst many for the court to consider. It is relevant to, but not determinative of, post separation accrual.
5. The difference in figures (£1.5m on the ‘hindsight approach’) is relatively small and unlikely to make a material impact on the proceedings.

Non-Compliance

The non-compliance of both parties with the necessary case management requirements was raised by Peel J.

Pursuant to the 2016 High Court Efficiency Statement, position statements for interim hearings should be no longer than 10 pages. Peel J criticised leading counsel for exceeding the limit. Bundles are limited to 350 pages (PD 27A 5.1), however the bundle consisted of 600 pages and neither party sought permission to exceed the requirements.

Overview: HHJ Evans-Gordon clarified that the court does not have the power under Schedule 1 to the Children Act 1989 to order the payer to borrow monies to purchase a property for the benefit of the child.

Background: Applicant father made an application to challenge an arbitral award made by a jointly appointed arbitrator on 12 August 2022. The award was made pursuant to Schedule 1 of the Children Act 1989. The challenge was made on two general bases;

Ground 1- the arbitrator had no power to require the applicant to borrow monies for the purposes of making a settlement of property under paragraph 1(2)(d) of Schedule 1

Grounds 2 – 12 - the award more generally, was wrong and/or unfair in that it failed to take into account the applicant's own needs and his ability to pay. The father stated that there has been a significant change of circumstances that it would be wrong to make the award an order of the court. The change of circumstances comprises of a continued fall in the applicant's net income and a significant increase in interest rates which were unforeseen at the date of the award.

The award required the father to purchase a property for the mother and children during their minority with a housing fund of £1,100,000 or £1,130,000. This required the father to enter a joint mortgage with the mother in the sum of £870,500. The father would contribute £240,000 in cash towards the deposit and the costs of purchase. The mother would contribute between £3,000 and £20,000 to the purchase. The applicant would be solely responsible for paying the mortgage. The property would then revert to the parties in proportion to their contributions upon a triggering event. It seems that at the time no party suggested that the arbitrator did not have jurisdiction to require the applicant to borrow funds.

The Law

The judge identified the starting point on the law is the decision of the Court of Appeal in Haley v Haley [2020]EWCA Civ 1369. The Court of Appeal set out the nature and scope of the application, where a party refuses to agree to the conversion of an arbitral award into a consent order,

The logical approach by which to determine whether the court should decline to make an order in the terms of the award, is by reference to the appeal procedure and the approach found in the FPR 2010. When presented with a refusal on the part of one party to agree to the conversion of an arbitral award into a consent order, the court should, at an initial stage, 'triage' the case with the reluctant party having to 'show cause' on paper why an order should not be made in the terms of the arbitral award. Such approach would be similar to the permission to appeal filter found at FPR rule 30(7) where the trial has taken place under the MCA 1973. If the judge is of the view that there is a real prospect of the objecting party succeeding in demonstrating that the arbitral award is wrong, then the matter can be set down for a hearing. That hearing will, as with an appeal, be confined to a review and will not be a rehearing, subject to any case management directions which the judge may make in relation to updating or other evidence and subject to, as under FPR 30.12(1)(b), the court considering that "it would be in the interests of justice to hold a re-hearing".

The court will, thereafter, only substitute its own order if the judge decides that the arbitrator's award was wrong; not seriously, or obviously wrong, or so wrong that it leaps off the page, but just wrong.

An arbitral award is not an order of the court and if challenged the procedure is akin to an appeal rather than a true appeal.

When the court approves an arbitral award is must ensure that the proposed order is fair in the light of the criteria set out in section 25 of Matrimonial Causes Act 1973 or paragraph 4 of Schedule 1. The court must be satisfied that the arbitral award is not wrong.

Held

In none of the cases considered by the court was it suggested or implied that a court can order a parent to borrow monies for the purpose of a settlement in circumstances where that parent is not already entitled to property in the required sum. The court noted that the award should not result in one parent unable to meet their own needs or the needs of the children while in their care.

The court does not adopt a two-stage approach to a settlement by directing the provision of a lump sum for the purposes of purchasing a property which is then settled on the child, it orders the settlement of a sum of money for the purposes of acquiring a suitable property unless there is already a suitable property in the paying parent's hands in which case it might direct a settlement of that specific property. It would be a misuse of the court’s powers to use the power to award a lump sum to circumvent the restriction on a settlement to property to which the paying parent is already entitled.

The fact that the applicant offered to borrow monies to purchase a new home for the mother and children did not make a difference. Such an agreement could only be reflected as a recital of an agreement or an undertaking. Absent a voluntary agreement or undertaking the court had no power to compel the applicant to give an undertaking or force him into an agreement to borrow monies to meet a property adjustment order.

Further, the court was satisfied the award was unaffordable. Dealing with the change of circumstances the court also determined that the increases in borrowing interest rates since September/October 2022 were sufficient to render the award wrong.

Background:

Divorce proceedings began between H and W began in 2013. In 2015, the parties agreed a consent order which provided for joint lives spousal periodical payments and child periodical payments.

In 2020 the husband applied for a variation/discharge of the periodical payments due to his significantly deteriorated financial circumstances. During the course of proceedings W was deemed to lack litigation capacity and invited Dr X to be her litigation friend. There were several delays within the case but the matter was set down for final hearing w/c 23 October 2023. W’s counsel informed Dr X that he was not available to attend the final hearing.

The court was informed that Dr X, was aware of this as early as 17 April 2023. Counsel’s clerk reaffirmed this on 20 June 2023. Despite this, Dr X had taken no steps to secure alternative representation or to seek an adjournment. Dr X failed to attend day 1 of the final hearing, stating he was unwell and formally applied to be discharged as litigation friend. H sought to continue the final hearing.

The court held that it could proceed on an interim basis, varying the periodical payments and adjourning all remaining applications generally with liberty to restore. H sought wasted costs following the abandonment of the final hearing.

The judge emailed Dr X to enable him opportunity to respond to the application for costs against him. Dr X sent a lengthy email with 10 attachments which explained his position.

The court deeming Dr X having had proper opportunity to answer the application against him, the court determined:

(i) The starting point is no order as to costs, (FPR 2010 Rule 28.3(5)) however FPR 28.3(7) allows the court to depart from this in certain circumstances.

(ii) In Barker v Confiance Limited [2020] EWCA Civ 112 the court held that an order can be made against a litigation friend, whether pursuant to the undertaking or by reference to s 51 of the Senior Courts Act 1981, where in all the circumstances it is just to do so.

The court held Dr X should pay the totality of the costs amounting to £42,128.79 within 14 days having willingly taken the role of litigation friend and failing to discharge his duties.

'I accept that he has not been well, but this fact does not adequately excuse or explain his conduct and he should not escape the consequences of what has happened.'