JULIA GODDARD-WATTS v JAMES GODDARD-WATTS

This case has a very unusual history and is the second rehearing of the application of the wife (“W”) of her claim for financial remedy orders. On two occasions previous orders of the court have been set aside as a result of the non-disclosure of the husband (“H”). Thus, I am in 2022 conducting a hearing when the parties separated as long ago as August 2009 and were divorced the following year.

The parties met and commenced cohabitation in 1987 when each was still young. W was then 23 and is now aged 57. H was then 21 and is now aged 55.

They did not marry until 1996 by which time they had two sons who are now aged respectively 27 and 25 and the year after they married their youngest son was born and he is now 24.

H’s parents had set up a very successful hardware business in which H and his brother later became involved which was sold soon after the marriage and provided H with some £15m net. In 2000 H acquired a company operating in the same field which for the purposes of the hearings has been described as CBA. It has been at the centre of the argument before me.

In August 2009 the parties separated and in 2010 H moved to and has since lived in Switzerland. He has formed another permanent relationship and he and his partner have four young children.

W has remained in England with the three children of the family. She still lives in the former matrimonial home in the West Country. The children now live in London and pay visits to their mother.

The parties negotiated a consent agreement which was converted into an order which was approved by the court on 1 June 2010. Under the terms of its provision, W received the former matrimonial home (£3.25m) and a lump sum of £4m, with £3m being paid within 3 months and the balance by instalments over 8 years. With the addition of some small other assets retained by her, she exited the marriage with about £6.6m immediately available and £1m to come.

Within the 2010 court process H valued his interest in CBA at £6m. There was no formal valuation. He retained his shares and director’s loan account in CBA. The effect of the agreement, as I am told, was that W received approximately 45% of the disclosed assets (although the arithmetic seems to me to produce a figure closer to 40%) and H received the balance, no doubt his greater portion reflecting the risk/liquidity in the business and, perhaps, I know not, the origin of some of the funds. These figures exclude the value in the two undisclosed trusts.

In 2014 W came to understand that there were significant trust assets of which H had failed to disclose that he was the primary beneficiary. She therefore sought to appeal the consent order made on 1 June 2010 by the deputy district judge.

H argued that there was no non-disclosure or at least not of anything that was material. That argument was rejected by Moor J who granted permission to appeal the final order out of time, allowed the appeal, and set aside the final order. H sought to appeal the order of Moor J but was refused permission by the Court of Appeal.

Within the proceedings that then ensued, CBA was valued by the forensic accountant David Greene of MGR Weston Kay LLP as SJE. His instructions included valuing the company as at June 2010 as well as at 2016. He concluded that its value in 2010 was some £6.7m, within 10% of what H had said at the time.

The final hearing came before Moylan J (as he then was) and on 23 November 2016 he ordered H to pay a further lump sum of £6.42m reflecting half the marital element of what he found to be the undisclosed trusts with certain adjustments. He also accelerated the payment of the last £1m of the lump sum.

It was W’s case in 2016 that she should receive an equal share of the parties’ current resources including the assets in the trusts. She argued that the sharing that took place in 2010 was of no continuing relevance because it was procured by H’s non-disclosure and that therefore W was entitled to have her award determined by reference to the current position including the increased value of CBA. She sought a lump sum of around £14m plus 40% of the uplift of the proceeds of any sale over the valuation figure.

H’s case was that while W should receive a share of the value of the trust assets to reflect the loss caused by H’s non-disclosure, the other assets were shared in 2010 in a manner which was and remained fair.

The arguments that I have heard have in their essence been identical to what was heard by Moylan J.

The judge therefore had to consider whether to start from scratch or whether to adopt a more tailored position as had happened in the case of Kingdon v Kingdon [2011] 1 FLR 1409.

At paragraph 49 of his judgment Moylan J said this:

As at 2016 Mr Greene valued H’s shares in CBA at a little over £16m. In doing so he had to consider the relevance of an indicative conditional offer made by a PLC, called for these purposes FED, in September 2015 in the sum of £82.6m net of debt. H’s case was that the offer was withdrawn without explanation the month after it was made.

Mr Greene commented that the conditional offer was a very high offer as it reflected more than 26 times the company’s EBITDA for the year ending July 2015 and was subject to the achievement of a number of key assumptions. It was H’s case that the offer was so heavily caveated that it was never a realistic offer in the sense of being achievable.

The judge agreed with Mr Greene that the offer was of no relevance to the exercise he undertook because it had been withdrawn and did not reflect the likely value of the business.

In Sharland v Sharland [2015] UKSC 60, [2015] 2 FLR 1367, Lady Hale, with whom the rest of the court agreed, said this:

The judge had to consider, as have I, W’s argument that “fraud unravels all”.

In Kingdon, Wilson LJ (as he then was) was dealing with a case where H, the non-discloser, argued that the first-instance judge should have taken an assessment of all the assets of the case while W, the victim of non-disclosure, wished to confine her claim to a share of the non-disclosed asset. The trial judge had agreed with her. In his judgment Wilson LJ said these words:

In his judgment Moylan J said this:

Ms Stone QC who appears with Mr Webster QC on behalf of W urges on the court that Moylan J was wrong to take the approach that he did but not withstanding that, the fact that H failed properly to disclose what was going on in the business at the time that Moylan J was making his decision takes this case into a different league of non-disclosure and that if Moylan J had known what the true value of CBA was he would not have taken the approach that he did. In a sense, this proposition is unnecessary because, as I will shortly come to, the order of Moylan J was subsequently set aside and thus I have the discretion to determine what approach I should adopt in this rehearing, and whether I start completely afresh or whether I should adopt a more limited Kingdon approach.

As mentioned earlier, in 2015 FED had been sniffing around CBA as a purportedly interested prospective purchaser of it. It was H’s case before Moylan J that FED swiftly exited the scene and was no longer proceeding with its offer.

It transpired, and Holman J so found, that the offer of FED was not actually formally withdrawn but it petered out because it was not high enough for H to accept. Even after September 2015 the possibility of the sale by H of all or some part of his shares to FED remained.

On 28 October 2016 the judgment of Moylan J was circulated in draft and a formal hand-down took place on 23 November 2016. Just the day before hand-down Grant Thornton, acting on behalf of H/CBA emailed FED outlining H’s offer to sell 25-30% of his holding (I include in that description a holding that the children’s trust had in CBA) for £25-30m cash which would give an enterprise value of £125m.

This was part of an ongoing process which H did not disclose and the judge was in no doubt that this was a deliberate failure to disclose.

Holman J held that if Moylan J had been told of the offer he would not have made the order when he did and would have withheld handing down his judgment whilst the full and true facts were ascertained and W and her advisers could take stock. Thus it was that the non-disclosure deprived W of “a real prospect of doing better at a full hearing” (as per paragraph 15 of Sharland).

At paragraph 62 Holman J concluded:

H sought to argue before Holman J that there was no non-disclosure, but that in any event it was not material because:

Holman J rejected those arguments and at paragraph 71 said this:

In doing so, the judge applied the Sharland test set out at paragraph 33 of Baroness Hale’s judgment which places the burden upon the perpetrator of showing that the court would not have made a different order if fully informed of what was now known.

Accordingly, Holman J set aside the 2016 final order. H once again unsuccessfully sought permission to appeal. Thus it is the matter comes to me to consider the case.

As I have already set out, CBA was valued at £6m by H in 2009/10 and there has been no challenge to Moylan J’s determination that this was within a realistic bracket.

In the proceedings in 2016 Mr Greene valued H’s share in the two companies which comprise CBA at £16.1m, that being about one quarter of the amount that H would have received if the sale to FED had gone through.

In January 2018 FED purchased 25% of the total shares in CBA, comprising 25% of H’s total shares and 25% of the 1999 Children’s Settlement total shares. H received £20.45m and the settlement £4.45m, in each case for a sale of one quarter of their original holdings. The sale contract provided that FED had an option exercisable in or before January 2021 to buy the residue of the shares for £75m, which would result in H receiving a further £61.3m and the trust its proportionate share.

In the event FED did not exercise its option. The contract gave H an option for 2 years beginning in January 2021 to buy back the shares that were sold to FED at the sale price. H’s unchallenged evidence is that commercially he needs either to float or sell some or all of the company so that he can repay FED the £25m.

In these proceedings before me Mrs Faye Hall of Smith and Williamson has been appointed as SJE. The shareholding in the company following the purchase referred to in paragraph 38 above is that H owns 61.3%, FED 25% and the 1999 Settlement 13.6%. Several key employees have a very small stake under an incentive scheme.

Mrs Hall’s first report was filed in November 2020. As the first £25m had to be repaid to FED, H’s interest in CBA was therefore only worth £2.9m. In addition, he was owed approximately £5.4m from CBA by way of repayment of shareholder loans of which £3m was owed by him to his brother who had advanced money.

It was against a background of trading difficulties that Mrs Hall valued H’s interest in the company as of November 2020 at £2.9m, less by some way than it was valued in 2010, even after adding back the shareholder’s loan account.

One year later Mrs Hall produced her second report by way of addendum. The equity value needed to be reduced by the £25m to be paid to FED. She estimated the value of H’s interest in CBA to be £56.4m. It may be (Mrs Hall’s report is silent on this) that a reduction needs to be made for the value of the employees’ interest but that is sufficiently small as to be able to be ignored by me. As before, H is owed £5.4m by way of shareholder’s loan of which a portion is money borrowed from his brother.

Whilst there had been a reduction in the company’s debt, it is obvious that the major contribution to the greatly increased value is the forecasted substantial increase in the maintainable earnings.

Mrs Hall was called to give evidence.

In the light of my approach, as will be seen later, it is unnecessary for me to seek to make a precise valuation of CBA and there is insufficient reason for me to go behind Mrs Hall’s valuation.

Much effort was made by W to seek to persuade me that even now H had in this set of proceedings not given full and frank disclosure until the very last moment before the trial started. It is unnecessary to lengthen this judgment by analysing this argument at length. I shall give my conclusions on it but the detail adds nothing.

As 2020 went on towards its end, CBA’s sales improved.

W is extremely critical of H not informing the court at a hearing on 5 February 2021 of the improvement in CBA’s performance.

There is some but limited justification in W’s criticism.

At the hearing on 5 February 2021 I made a direction for the provision of ongoing information and H was required to file and serve a sworn statement providing full details of, amongst other things, any discussion with any third party in relation to any sale or potential sale of all or part of CBA.

The time for the statement was extended by agreement and it was provided on 12 May 2021. I am satisfied that that statement provides the information to which W was entitled.

With the benefit of hindsight, the order of 5 February 2021 might have been framed more expressly. H interpreted the order in a limited way.

Ms Stone is right to say that with his track history, H should have erred on the side of excessive discovery.

I do not find H’s disclosure in this round of proceedings to have been significantly deficient or material to the outcome.

W continues to live in the former matrimonial home whose value appears to have remained static since 2010. She owns an investment property and has other liquid funds net of outstanding costs of about £2.9m. She has pension funds with a value of a little over £200,000. Thus, she has some £3m outside the value of her home to meet all her income needs.

H divides his time between Switzerland and Majorca owning houses in each place with a combined equity of some £6.4m. He has bank accounts holding about £900,000 and has cars, boats and watches worth about £5.1m. He has outstanding costs and a loan from his brother so as to produce net assets excluding his interest in CBA and his SLA of some £9.7m. He has pension funds worth about £1m.

It is quite apparent that both parties have been living a lifestyle which cannot be maintained by their income. In her Form E W describes her only income as being the rental from the investment property at some £44,000 p.a. She puts her income needs as being £346,000 p.a. H in his Form E puts his income needs and actual expenditure at £1.8m p.a. gross of tax and inclusive of the cost of his second family against his income of about 1/8^th of that sum.

W is plainly not living to her budget and I will consider its reasonableness in due course. However, notwithstanding having received £4m cash under the 2010 consent order and a further £6.4m cash under the order of Moylan J, her resources apart from the home are only some £3m rather than the £10m that might have been expected, excluding any reference to inflationary increase.

There was no real investigation during the trial before me as to why W’s funds are so depleted. Since 2009 to the end of November 2021 she had spent £1.933m on costs and the further costs incurred to the end of this trial are likely to have increased that figure to approaching £2.5m. Of that sum of £1.933m, she has recovered a little under £800,000 by way of costs orders from H.

In addition, at the end of 2017 and the start of 2018 she bought each of the 3 children a flat in London. The total cost to her of that exercise was £2.4m.

The relationship between H and W has for years been at rock bottom. There is next to no communication between them and each blames the other for that unhappy situation. The boys have been caught in the fall-out and have no current relationship with their father.

The purchase of the flats by W was something that she did unilaterally and without consulting H or seeking that the purchase might be financed from the children’s 1999 settlement of which she is a trustee. W’s motives were mixed and not easy to divine, but included a combination of wishing to see the boys set up in their own homes in London rather than having to pay rent, advanced inheritance tax planning, guilt at their lack of support received from the trusts of which they are beneficiaries, and guilt about the situation that had developed, in particular the loss of the lifestyle that the children had enjoyed during the marriage.

During the course of the hearing, H offered through counsel that the settlement should make a payment out to the children to enable them to repay their mother the costs of the flats. W did not accept that offer. She had made the children a gift and did not want to take from them their money. I understand her response, whether it is wise or not, and I do not criticise her for it.

In many cases I would consider it appropriate that the sum expended by W on the flats and the £360,000 gifted to members of her family (very largely to her brother who has assisted her in the proceedings) should be added back into her resources, particularly in the circumstances of H’s offer to refund.

On the facts of this case, however, I do not take that course. In a case where H’s expenditure has dwarfed that of W, this relatively modest level of expenditure to provide each child with a starter home was not inappropriate and nor were the payments to other members of her family.

As the parties have no communication whatsoever and H and the children are in effect estranged, it was understandable that W did what was necessary or desirable for the boys without reference to H. H could have made his offer for the children’s trusts to reimburse very much earlier than he did. Further, if it was to be taken up it would simply mean less being available for the children at a later stage, including the three of H’s four children from his second relationship who fall within the category of beneficiaries.

For his part, H’s expenditure has not been near to having been met by his income. That is hardly surprising: the expenses of running his boat alone come to some £30,000 p.m. and his salary is the sterling equivalent of a little over £200,000 p.a. He has lived off the sale proceeds of various assets and the use of the sums that he has had in his bank accounts. .

On 7 October 2019, shortly before the hearing before Mr Justice Holman took place, W offered to settle her claim for £3m. On 21 November 2019 that offer was repeated but subject to the addition of the requirement that H pay her legal costs in the sum of £660,000, being presumably the costs incurred during the hearing before the judge.

On 4 February 2021 W increased her required sum to £5m plus costs. Each of these offers was rejected by H who made no offer of any payment.

On 12 January 2022 W increased her proposal to a requirement that H make a payment to W of £13.4m by 31 January 2024 or an earlier realisation of H’s shares in CBA. H’s response once again was that he would make no payment to W but would not seek his costs provided that his offer was accepted within three days.

My starting point is that I am adjudicating upon W’s claim de novo albeit against the background of the orders made in the past which have provided her with funds. I am acutely aware of the criticisms made by the courts in the past of H’s disclosure which has deprived W of the opportunity of being able to consider the resolution of her claims with full knowledge of what the asset base was.

I bear these points strongly in mind but I am convinced that the approach I should adopt is the Kingdon approach. I reach that conclusion for the following reasons:

W claims that if she had known the full picture and prospects of CBA she might have insisted that she receive some of H’s shareholding in the company as part of the settlement. I reject that argument for a number of reasons:

Ms Stone says that W’s contributions to the children, now aged 27, 25 and 24 have endured for many years after the separation in 2009 and that entitles W now to share in the fruits of the wealth built up since then. She accepts the general approach that Baron J enunciated in M v M [2004] 1 FLR 688

All cases are fact-specific. In this case the parties had divorced in 2010 and in 2010 and again in 2016 separated their affairs in a proper and fair way. It would not in general terms be appropriate or fair for W to share in the increase in value of CBA since 2010.

There is however one aspect which I can properly consider. It cannot have been in the contemplation of either party that the whole of the burden of the children’s care and upbringing should have fallen on W from 2010. As a result of the disagreement between the parents all the emotional and physical parenting has fallen on W. I take that into account in my approach to needs.

H says that this part of W’s claim is an afterthought prompted by me. In a limited sense Mr Bishop QC who appears with Mr Sear for H is right. It is not W’s primary claim and it is barely touched on in her Form E or s.25 statement.

However, it is apparent from reading both those documents that it is W’s case that she has not the means to enjoy the standard of living which she enjoyed before or one which properly reflects what she is entitled to.

The fact that she says that she will cut her cloth according to what is available does not mean that the claim does not exist. While its presence may have been disguised by her claim for the much greater award reflecting a share in the company, it was always there.

At the outset of the hearing I required Ms Stone to clarify her client’s case. I was not greatly assisted by her description of the needs claim as being a cross-check in an unexplained amount but the answer was sufficient to alert Mr Bishop that this was a live claim with which H had to deal.

I have to consider all the s.25 factors and that is the approach that I have adopted. These include needs assessed as at the time of trial. In doing that assessment I shall take into account W’s contributions over the years including those over and above what was anticipated in 2010.

W’s housing needs are met. She says that she is not happy living in the matrimonial home which was foisted upon her. It is of course open to her to sell the property whenever she wants. I am not prepared to accept that such a sale should be treated as releasing surplus funds to W to provide for her future, and H did not press this point. She could rehouse for much less but that will be a matter entirely for her and she will reasonably require a property of sufficient size to accommodate children and grandchildren.

W lives with her partner with whom she has been for about 10 years. He does not contribute financially and he is not a man of significant means.

W’s budget has quite properly not been the subject of a line by line scrutiny. Several major items were challenged:

In adopting the approach that I have, I do so against all the facts of the case, including H’s “turpitude”. I do not accept that this is an all (complete rehearing) or nothing (sharing having already taken place) case. Each case deserves its own bespoke treatment.

I take W’s income needs as properly put in the sum of £200,000pa. I arrive at that figure by looking at what I find properly to be her budget against the wealth that exists in this case, taking into account that it is largely acquired post-separation. I have notionally in my mind pruned most of her payments to her mother on the basis that they will likely be short-lived, certainly when compared to W’s lifespan, and significantly reduced housing costs. I have applied a modest reduction to some of her other expenditure.

I have not reduced this figure by the amount of W’s pension funds as for a period W will have the expenditure on her mother’s care home costs. I have also not acceded to her argument that I should ring-fence £1.8m of her income fund as being income-producing only without being amortised. I arrive at that conclusion because of W’s alienation of some £2.8m of her funds. I have not criticised her for this but it does not encourage the ring-fencing of what she has kept.

Reference to the Duxbury tables in At A Glance show a shortfall of £1.1m so as to provide the necessary fund: (£4.026m - £2.917). That is the award which I make and which I consider produces a fair outcome in all the circumstances of the case.

At the end of the case before me, Ms Stone asked me to make an additional award of some £812,000 being the costs incurred by W in previous hearings which have not been part of the costs awards made in her favour. I reject that. If W incurs costs which are far in excess of what costs orders (two of them on an indemnity basis) have produced, that is a matter for her. As I have approached this case on a needs basis, this argument turns out in any event to be sterile.

It is a tragedy that the parties have between them spent in legal costs in this round of the litigation alone (W:824k per Form H1: H:737k per Form H1) more by some way than the amount of my award. That will give rise to difficult questions when costs fall to be considered as they now will.