Michael v Michael (No. 3) [2025] EWFC 245

Judgment date: 11 June 2025

https://caselaw.nationalarchives.gov.uk/ewfc/2025/245

HHJ Hess, sitting as a DHCJ, addressing business valuations in a financial remedy final hearing.

Brief background

This matter involves the financial remedy proceedings of two parties of Greek Cypriot heritage, with assets totalling £39.9m. A summary of HHJ Hess’s first judgment in this matter, following the 12-day final hearing in July and August 2024, and enforcement proceedings arising from this, can be found here and here. H had appealed these orders to the Court of Appeal, but the present hearing was in relation to matters that remained outstanding.

This judgment relates to five further days of a final hearing in May 2025. The case returned to court with only H and W as parties; the seven other respondents dropped out following HHJ Hess’s recommendation in the first judgment.

Law

The core dispute between the parties in this hearing related to the valuation of certain assets. The issues between the parties here fell into four categories; [35]:

1. Value of MBL and treatment of dividend payments;
2. Value of Hartsfield Investments UK and treatment of money owed by a third party;
3. Tax consequences of HHJ Hess’ findings of a ‘sham trust’; and
4. W’s add-back arguments.

HHJ Hess acknowledged the fragility of any valuations of private companies, citing Moylan J (as he then was) in H v H [2008] EWHC 935:

‘The experts agree that the exercise they are engaged in is an art and not a science … The court is engaged in a broad analysis in the application of its jurisdiction under the Matrimonial Causes Act, not a detailed accounting exercise. As Lord Nicholls said, detailed accounting is expensive, often of doubtful utility and, certainly in respect of business valuations, will often result in divergent opinions each of which may be based on sound reasoning. The purpose of valuations, when required, is to assist the court in testing the fairness of the proposed outcome. It is not to ensure mathematical/accounting accuracy, which is invariably no more than a chimera …’

1⁠. Value of MBL and treatment of dividend payments; [37]–[50]

HHJ Hess had already found in his first judgment that H solely ran this property and development company; [40].

Write off and minority discount

Mr Pearson, the SJE valuer of the company, valued MBL at £15m. The issues were (a) should there be a further 35% minority discount applied and (b) was it correct of Mr Pearson to write off a sum of £3.9m owed to MBL by a third party, which H argues is unlikely to be recoverable; [42]?

HHJ Hess agreed with the SJE that the sums owed to MBL by a third party should not be written off, notwithstanding that the notional date of valuation had passed. The court declined to reduce the sum to reflect the late emergence of documents evidencing this sum, as argued by counsel for H; [43].

Looking to the minority discount, HHJ Hess drew similarities with Clarke v Clarke [2022] EWHC 2698 (Fam) and determined this was a quasi-partnership, or that H ran the company without references to his ‘partners’ at all; [45].

Applying these determinations, H’s interest in MBL amounted to £6.9m; [47].

Dividend payments

In July 2023, during proceedings, a dividend payment of £3.5m was paid out of this company. H waived his entitlement of £1.2m and received only £36k from this dividend. W argued this waived amount should be added-back and HHJ Hess agreed; [49]. HHJ Hess noted that at this time H was informing the court he could not meet his MPS and LSPO obligations; [49].

Counsel for H argued that if the waived dividend were to be added back, dividend tax should be deducted. However, the monies had actually been paid to H’s brother (who lived in Cyprus) and ‘loaned’ back to H. HHJ Hess considered it inappropriate to notionally deduct tax given the tax-avoidance structure set up, citing BJ v MJ [2011] EWHC 2708 (Fam); [49].

2⁠. Value of Hartsfield Investments UK and treatment of money owed; [51]–[71]

HHJ Hess had found H is a 100% beneficial owner of this company, which deals primarily with developing and letting real property; [51].

Mr Pearson valued the company at £24.8m; [53]. W argued that its value was £47.3m ([55]) based on (a) the SJE’s presentation of developments at West Green Road and Clarendon Road; (b) the SJE’s presentation of the development at Larence Road; and (c) a dispute about the figure which amounts to ‘irrecoverable amounts’.

Developments at West Green Road and Clarendon Road

There was an error made by the SJE valuing the properties at West Green Road, to the tune of £12.9m. HHJ Hess added this figure back but allowed for deductions to be made as a consequence of this, as argued by H; [57].

The SJE included a ‘hope value’ for Clarendon Road to reflect a planning application which was pending but was since successful. Counsel for W argued an upward adjustment was required. HHJ Hess disagreed with this, it would not be fair for one aspect of the valuation to be cherry-picked and varied upwards when lots of items may have gone up or down.

Lawrence Road

HHJ Hess uplifted the value of this development by net £8m, as argued by W. At the time of valuation, a different estate agent had valued the land more highly as they took a ‘value-maximising’ approach that the units (which were not yet completed) would be sold separately. Further, the income from renting was far higher than anticipated. Distinguishing this position from Clarendon Road, it was possible to revalue the development in light of ‘material changes’; [59].

Irrevocable amounts

HHJ Hess was not persuaded by W that there was a basis for amending the ‘irrecoverable amounts’ downwards; [60].

H’s disputes on the valuation

H also disputed the Hartsfield valuation, arguing for the following to be deducted: (a) minority discount; (b) cost of sale; (c) costs of Receivers; and (d) CGT.

HHJ Hess applied a minority discount and reduced the value by 20% of the 50% owned assets. There is a material difference to the relationship between H and his siblings (with MBL) and H and Mr Oliver (the 50% owner of Hartsfield); [67].

HHJ Hess declined to make a deduction for CoS as the minority discount contemplates that Mr Oliver would purchase H’s assets at a discount and so CoS is likely to be small, and it risks double counting; [69].

The court determined that the cost of the Receivers was H’s own making and it would not be fair for W to have to pay half of this, so no deduction was made; [70].

CGT liability was not deducted; the reduced value of interest means that there is unlikely to be significant CGT; [71].

3⁠. Tax consequences of ‘sham trust’; [72]–[80]

HHJ Hess had previously identified a ‘sham’ trust in his first judgment. This finding would lead to tax consequences, but the evidence was that there was a large range of outcomes for this liability depending on how HMRC considered the issue. Despite both H and W not endorsing the approach of the court, HHJ Hess determined that the only fair way forward was a reverse contingent lump sum dependent on the actual tax arising; [80].

4. W’s add-back arguments

HHJ Hess considered that W’s add-back arguments amounted to cost arguments; [81].

Conclusion

The assets are worth £39.9m and, even with the top end of tax liability, there are enough funds for this to be dealt with as a sharing case; [84].

H had sought for an order whereby there was no lump sum payment to W, W would receive the net proceeds of FMH and the arrears under LSPO/MPS be discharged; [91]. W had sought a lump sum of £27m, including her entitlement to the FMH; [90].

HHJ Hess concluded that H was to pay W a series of three lump sums amounting to £15m, MPS will continue until the second lump sum payment is made, the FMH is to be sold and the net proceeds paid to W (but credit will be given against the third lump sum payment for this). A reverse contingent lump sum is in place for H to receive from W 50% of a tax liability from HMRC, subject to a maximum of £7.5m; [93].

A further hearing was listed to deal with issues of costs and publication; [96].