Financial Remedy: OG v AG [2020] EWFC 52: Value of a business, Covid, Brexit and Beyond

Divorce & Matrimonial Finance

02 October 2020

During these troubled times, when a reliable crystal ball would be helpful, the case of OC v AG [2020] EWFC 52 in which judgement was handed down on the 29th of July 2020, is of interest.

The Facts

The facts related to cross-applications by the Husband (OG) and the Wife (AG) in respect of financial remedies following divorce. It had been a long marriage (25 years) which produced two children, aged 25 and 10 years respectively.

The parties had set up a successful ducting business, ‘X’ during the marriage which was held in equal shares. The Husband had predominantly worked on production/selling and research and design whilst the wife had mainly worked on the finance and administrative side of the business. At the time of the final hearing X was valued at approximately £13.8m. The trading element was valued at just under £4m. The parties had also acquired 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.

The Husband resigned as a director of X in November 2018. 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, to which the Husband had loaned equivalent amounts and those funds had come 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 and were calculated to be approximately £900,000.

The Court’s approach generally and in respect of Covid and a potential no-deal Brexit

Of interest to practitioners, was the issue of how the Court should deal with the asserted impact of Covid-19 and a potential 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 business of X was with customers sited in the EU and presently transacted on a tariff-free basis.

The consequence of this is that 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. On behalf of the Wife it was 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 Single Joint Expert (“SJE”) who valued X agreed that a discount should be applied to these risks but declined to provide a figure. Mostyn J 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.

The Wife argued that the value of X (including surplus assets) should be discounted by 40% because the Husband had set up competitor business AB. The SJE’s opinion 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 to 40% discount in the asking price. Mostyn J applied a 30% discount to the value due to the husband having set up AB. This discount was applied only to the trading aspect of the value and not to the surplus assets.

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.

Mostyn J considered the four scenarios in which conduct could arise within financial remedy proceedings, namely:

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; and

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 held 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. It was held that this would amount to a discount based on morality where the court should only apply sanction for conduct where it was financially measurable.


The parties ran up around £1 million in costs. Mostyn J found that these costs were 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 Pre-Trial Review (“PTR”) (ref: para 4.4 of FPR PD28A). Mostyn J held in respect of the wife’s failure to negotiate:

“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 Pre-Trial Review (“ PTR”) and (ii) the costs between PTR and final hearing. The Wife’s costs in period (i) were approximately £412,000. The Court formed the view during the parties’ evidence, that both had been difficult and confrontational. As a result, Mostyn J did not accept that but for the Husband’s litigation conduct the case would have settled. The Court considered that in any event, the case would have proceeded to final hearing. The Court 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; and

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; and

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

The Husband was accordingly ordered to pay 90% of the Wife’s costs (reduced in accordance with paragraphs a – c above) in period (i) on an indemnity basis (£235,626).

In respect of period (ii), Mostyn J 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 and Discussion

Mostyn J considered that in all the circumstances, this was a case to which the equal sharing principle applied. The marriage had been long, and all the property was matrimonial. In respect of contributions, each of the parties had their part in contributing to the family business and the Court 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 equally between the parties. The Court 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 and the 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, Mostyn J 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. The Court stated that it hoped that this would serve as a lesson to any future litigant who was tempted to behave in the same way.

It will be noted that every case turns on its own facts. Given that we are still experiencing the effects of the pandemic and the outcome of Brexit is as yet unclear, the difficulties in trying to place a value on businesses will be a problem that the Courts will have to wrestle with for some time to come. In addition, parties can expect to be penalised for their litigation conduct if such conduct falls below the standard that can be reasonably expected.

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