HHJ Hess sitting as Deputy High Court Judge. Discussion of valuing art and H’s art business, the difficulties of valuing large collections of art, and problems that can arise when experts are not cross-examined at final hearing.

Background and litigation history; [1]–[14]

The wife (GO, ‘W’) and husband (YA, ‘H’) had a final hearing over the course of four days in December 2024. This was a long marriage – HHJ Hess did not pin down an exact date of marriage, but noted the parties ‘married in the 1970s’ and separated in 2019, with divorce proceedings starting formally on 8 July 2021. They had two adult children.

Each of the parties lived on their own in central London, and were above state pension age. H had a number of serious health issues but insisted he would continue to work; he did not wish to retire. He was a ‘world leading figure and expert in a particular area of art’, and his business had ‘been at the centre of his work… and has assumed a central importance to the financial remedies case’ – indeed, HHJ Hess commented that it ‘rather bedevilled proceedings’; [8(vii)].

Financial remedy proceedings; [11]–[14]

In H’s Form E, he had noted that the 95% stake he held in his business was worth c.£6m, with his personal art collection being worth only £153,000. W challenged this, and issued a Part 25 application early in proceedings. The process of obtaining an agreed value was, unfortunately, not entirely uncomplicated.

The parties were first directed to attend a pFDR in May 2022, with SJEs for valuing H’s art collection, and for tax consequences on disposal of the artwork. H was directed to produce an inventory – he did not do so until March 2022, and on the inventory were over 3,000 individual items of artwork, books, and prints. Unsurprisingly, the quoted price of valuation increased; the parties did not instruct the valuers and, by the time of the scheduled post-FDR directions hearing (7 June 2022), no SJE had yet been instructed.

DJ Cronshaw had the unenviable task of getting proceedings back on track, and directed that, to achieve this, W should select 375 pieces of artwork from H’s collection. This selection would then be valued (with cost of valuation capped), with this value used to ascribe a value to H’s whole collection. The pFDR was rescheduled for February 2023.

The SJE produced a report on the value of the 375 items on 25 November 2022, subsequently placing a value of c.£1.18m on H’s personal art collection. This valuation was disputed by H, and used by W to paint a picture of H as dishonest. H offered W one of the paintings – which he had valued at £50,000, and the SJE valued at £550,000 – to sell. W refused to take the painting. HHJ Hess ‘surmise[d] that the wife did not really have much confidence that she would be able to sell the painting at the SJE’s price’, further commenting that this was ‘a good illustration of the soft, and sometimes unreal, attempt at a valuation exercise in this case’; [11(x)].

By the time of the next post-FDR hearing in March 2023, the parties had not made much progress. The pFDR was rescheduled again for July 2023. By then, the parties were still at odds over valuation figures, and further questions were put to the SJE on 25 July 2023.

The SJE’s further report was produced in October 2023. The questions asked of the SJE regarded a discount for ‘immediate’ sale of items, as opposed to sale over 7.5 years. The SJE gave a discount figure for 80% for the former, and 30–35% for the latter (albeit these were amended again in January 2024, to 70–75% and 20–25%).

This final tranche of questions enabled the pFDR to proceed, and so it did, on 11 January 2024. It was unsuccessful, and the parties again found themselves at a directions hearing, this time before HHJ Hess, in April 2024. Fortuitously, both the timetabled PTR and final hearing took place as planned.

Significantly, between the directions hearing in January and final hearing in December 2024, no updating valuation from the SJE was requested, nor did H make a Daniels v Walker application to oppose the SJE’s valuation. This was despite his own apparent view that ‘he is the person best qualified both (i) to opine as to the value of the … stock of art … and also (ii) realise that value’; [11(xvi)].

The parties had initially agreed to employ a further SJE on accountancy matters, to place the figures from the artwork valuer in the context of business valuation. However, both parties obtained ‘partisan’ expert reports. HHJ Hess directed that the experts meet to produce a joint report. Though such a report was produced, HHJ Hess expressed his disappointment that the experts ‘simply re-stated their own position’. The potential value for the business ranged massively, from c.£6m to c.£21m; [11(xix)].

Despite the substantial issues apparently taken by H with the valuer SJE, and the disagreements on tax implications, no SJE was called to give evidence at the final hearing on 9 December 2024. HHJ Hess, noting the rule in Browne v Dunn (‘that as a general rule a party is required to challenge by cross-examination the evidence of any witness of the opposing party on a material point which he wishes to submit to the court should not be accepted’), observed that ‘this does present an issue for the court to decide’; [14].

Section 25 analysis; [18]–[35]

After briefly running through the relevant law ([15]–[17]), HHJ Hess turned to application of the section 25 factors to these facts. The non-business assets were dealt with succinctly. HHJ Hess found that W held £928,679 of realisable assets; H held £1,239,108, including his personal artwork collection; [18]–[25]. This left HHJ Hess to assess the business.

HHJ Hess found that he was obliged to accept the SJE’s value for the artwork, as well as the discounts for immediate sale as sale in 7.5 years. Though H plainly thought he knew better, ‘it is not good enough for the husband to say he knows better, absent (at least) some convincing challenge by cross-examination’; [28].

The 10% of the collection that had been valued by the SJE had been ‘uplifted’ in value by the SJE by an average of 50%: W attempted to argue that the same arithmetic should be applied to the remaining 90% of the collection. W’s argument was that the business was worth c.£18.3m, on this basis. HHJ Hess was not convinced by this ‘mathematical extrapolation figure’, albeit he acknowledged that there had to be some reconciliation between the SJE and H’s own figures. At [29] he valued the business at £13,000,000, albeit noting at [30] his ‘reservations’ in ascribing this value.

On the argument that W’s share should be taxed differently to H’s, HHJ Hess again took a blended figure of 30% (midway between CGT rates of 24% and potential income or dividend tax rate at 45% or 39.35%). W’s share in the business was thus ‘very broadly’ £4,550,000; [31] (HHJ Hess reminded himself of Moylan J’s dicta in H v H [2008] EWHC 935).

The remaining section 25 factors were considered briefly; HHJ Hess thought the parties’ needs, obligations and responsibilities met to the appropriate standard by the capital division ordered; [33]–[35].

Outcome; [36]–[49]

Both parties’ open positions at final hearing were ‘troubling’; [40]. W’s proposal included a provision whereby if H failed in paying one in a series of lump sums, then the balance of all the sums would become payable (interest accruing at 8%); [38]. H’s non-payment would effectively force the sale of the business if W chose to enforce her proposed order. H’s figures were too low, and non-payment would have created ‘an almost impossibly complicated enforcement situation’; [42].

After pondering the possibility of selling the business, HHJ Hess decided it was reasonable to give H the opportunity to raise the lump sum ordered by other means; [44]. Reminding himself of Peel J’s judgment in HO v TL [2023] EWFC 215, HHJ Hess fixed the lump sum payable at £3,100,000. This was to be paid in two tranches: £100,000 to be paid within 14 days of the order, and a further £3,000,000 to be paid by 1 December 2025. Per HO v TL, this was a discounted sum to account for risk and illiquidity.

The first payment would be enforceable against H – the second, if not paid, would trigger sale of all the shares in the business. If H paid the second sum, W was to transfer the 5% shareholding she had in the business to H. In addition to the lump sums, H was to pay W £8,000 pm from January 2025 until either both lump sums were paid, or until the company shares had been sold.