The High Court considers the impact of COVID-19 and no-deal Brexit on the valuation of a family company in divorce proceedings.

In the recent case of OG v AG [2020] EWFC 52, the High Court considered many topical areas for family lawyers. On the agenda was COVID-19, a no-deal Brexit, the impact of a husband having set up a rival company, conduct and the revised Family Procedure Rules,  which provide for the need to negotiate reasonably.

The parties were married for 25 years and had two children together, aged 25 and 10 at the time of the hearing. Decree Absolute, was pronounced in July 2019. The Final Hearing was held remotely by zoom and was to determine the financial aspect of their divorce.

The case concerned, amongst other assets, a family ducting company referred to as X . The company operated from the UK and also from another EU country (not identified in the judgment). The company benefited from the ability to transact in that country on tariff free basis. If no trade agreement is reached prior to the UK’s departure from the EU, this was said to have adverse consequences for X. At the time of the hearing X was valued at £13.8m and the trading value was £4m.

In addition, the parties owned domestic and international property in sole and joint names and some property owned by X. To include 5 flats in London, 3 properties in Gibraltar and 8 properties in Dubai.

The husband resigned from company X and his family and friends incorporated a new ducting company (AB) and such company had close links to a company in Dubai (TT), where the husband was living. TT loaned significant sums to AB and it was found that the husband was involved in AB and TT and had advanced significant sums to the companies which latterly transpired to be from proceeds of sale from the parties’ property in Dubai. The husband had sought to conceal this from the wife.

Peppered through the Judgements of Mr Justice Mostyn are creative metaphors. In describing the husband’s concealment and request for interim maintenance and payment of his ongoing legal costs that “he was hiding a sprat while at the same time making a claim for payment to him of his fair share of what was a very large shoal of mackerel under the control of the wife”. 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 Judge 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.

The Judge applied a 30% discount to the value due to the husband having set up a competitor company but only to the trading aspect.

The wife also argued that the conduct of the husband should allow the assets to be divided two-thirds to her and one-third to the husband. The Judge summarised the situations in when conduct will be considered.

• 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
• Add-back jurisprudence where in the rare case dissipation is clear and obvious

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

The Judge did not accept that there was conduct sufficient to warrant a departure from equality, but he did accept that there had been litigation misconduct and penalised the husband by way of a costs order of £278,020. He also applied a 30% discount to the trading aspect due to husband setting up a competitor business.  The ultimate award was 55.3/44.7 in the wife’s favour.

The husband in this case impacted the overall outcome by setting up a rival business, seeking to conceal it, dissipating assets and not disclosing his financial position. Brexit and COVID-19 acted to allow a 10% discount of X. The court proved again that conduct to bring about a departure from equality is not an easy argument to run. In this case the husband was penalised mainly through costs although the wife was not immune from criticism given the unreasonableness of her proposals.

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Jolene Hutchison is a Partner in the family team and can be contacted on Jolene.hutchison@ibblaw.co.uk

IBB Law’s family law practice can provide expert advice on all family law issues. To contact the family law team please email divorcefamilylaw@ibblaw.co.uk  or call 03456 381 381.