X v X  EWHC 538 (Fam)
Judgment following final hearing in a settled financial remedy case, giving guidance as to the preparation and presentation of such cases.
This judgment follows a final hearing in a financial remedies case. The case had had to be adjourned at the end of its seventh day as it had become clear that there was outstanding information that was of central importance to the case.
Following the adjournment, a settlement was reached between the parties. Nonetheless, Charles J felt it necessary to comment in this judgment on "the product of the preparation and presentation of the case" for the reason that "this case represents another example of the endemic failure in this field of litigation to prepare and present cases in such a way that, before the trial starts, the issues have been properly identified, and the evidence has been properly gathered and prepared".
Charles J refers to the comments he had made in the earlier case of Jones v Jones  EWHC 2654 (Fam) in which, also referring to other 'big money' cases that he had heard, he had criticised the legal representatives for their failure to identify properly the findings the court was being invited to make and the reasons why they were relevant, the facts that the court was being asked to determine as the basis for those findings, and the evidence that was required in order to do so. The relevant paragraphs of Jones v Jones are read into this judgment. The general discretion of the court did not justify a broad-brush approach being taken to the preparation of the litigation. By the time of an FDR, both sides should have identified the 'building blocks' of their respective cases.
In this case, Charles J did not disagree with the joint written submissions by both parties' legal representatives that had referred to the difficulties in this type of case being that costs are too high, relevant issues are not clearly defined, the relevant evidence is not produced in a timely fashion, there is often inconsistency between the approaches of different judges and the principles on which the courts determine the issues are regularly redefined.
Charles J made it clear that he was not seeking to criticise any individual involved in this case. His comments related to more general defects in practice and procedure. In this case, the property in dispute was a hotel and the dispute centred on the correct way to regard the hotel itself, rather than the business that was run at the hotel. The valuation that had been obtained for the proceedings was of the business, and not of the 'bricks and mortar' of the hotel itself. The judge described this as "a serious omission that indicates that the preparation of the case was defective". In addition, the available documentation relating to the gift of the hotel to the husband from his father was limited. The documentation that was provided gave rise to further significant questions that may well have a bearing on the s.25 exercise. Consequently, when the case was adjourned there were still significant gaps relating to the background to and completion of the alleged gift and the legal relationships between the relevant people and companies concerned or interested in the running of the hotel based on their agreements, discussions and understandings. The judge also observes that by this stage £1 million had been expended by the parties in legal costs. Had a settlement not been reached, he observed, it was still not clear that the Court would have been able to make an evidence-based decision in the case even at this stage.
Acknowledging the causes for the problems identified by counsel in their joint written submissions, Charles J adds that:
"[I]n my view, the application of the sharing rationale, particularly in non-paradigm cases, and so where it does not apply with full force, has introduced into this field of litigation property and commercial issues which the present system was not designed to deal with, and which historically practitioners in this field have not had to deal with."
This was primarily a problem in the 'big money' cases. The solution, according to the judge, is that in those cases there should be a change of practice to ensure that at an early stage the relevant issues that the court will be invited to find and take into account are identified. This would include the identification of relevant documents and the identification of expert and other evidence that is required. This could be done by each party identifying, shortly after exchange of Forms E, the relief which he or she seeks and the property and commercial issues that arise or are likely to arise.
Summary by Sally Gore, Barrister, 14 Gray's Inn Square
Neutral Citation Number:  EWHC 538 (Fam)
Case No: FD09D1210
IN THE HIGH COURT OF JUSTICE
Royal Courts of Justice
Strand, London, WC2A 2LL
Date: 16 March 2012
MR JUSTICE CHARLES
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Hearing dates: 5 to 13 December 2011 and 22 February 2012
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I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
MR JUSTICE CHARLES
This judgment has been handed down without attendance and is a public document. It consists of 10 pages and has been signed and dated by the judge.
Charles J :
1. The final hearing of this case was adjourned at the end of its seventh day. The reason for this was that, as was accepted by both sides, it had become apparent from an early stage of the hearing that further information needed to be obtained and analysed on matters that had a central impact on the issues to be taken into account.
2. Over the first two days of the adjourned hearing the parties conducted negotiations that resulted in them reaching an agreement to settle the case. The parties and their advisers are to be congratulated on reaching that agreement.
3. I was told that it was intended that the application for approval of the agreed solution would be submitted to me to consider without further attendance. On being told this, I informed counsel that I was minded to comment on the product of the preparation and presentation of the case, and gave them the opportunity to address me on whether I should say anything about this, and generally. They took up this opportunity by making written submissions. These were joint submissions signed by leading and junior counsel for both the husband and the wife. They are all from chambers whose members specialise in this work. The submissions did not invite me not to comment on the product of the preparation and presentation of this case.
4. I indicated to counsel that the reason why I was minded to make some general remarks was that, in my view, this case represents another example of the endemic failure in this field of litigation to prepare and present cases in such a way that, before the trial starts, the issues have been properly identified, and the evidence has been properly gathered and prepared. As they knew, I have raised this issue before.
5. I refer to examples of cases where I have done so in paragraph 476 of my judgment in Jones v Jones 2009 EWHC 2654 Fam. Before me, that was a case in which the parties raised a number of issues and, in my view, there were significant failures in its preparation and presentation. As explained in the first paragraph of my judgment, I dealt with those issues and failures at length. It seems to me that it would have been unfair for me to make the criticisms that I did without doing so, and that there was a public interest in me taking this approach. An obvious example of those failures, and their product, was that the case had to be adjourned on the first day of a ten day hearing because it was not ready for trial on a central issue of fact relating to an issue raised by the husband, and disputed by the wife, that she had substantial undisclosed assets.
6. This case is another example of a final hearing having to be adjourned because the presentation of a central issue had not been properly prepared.
7. The issues raised on the appeal in Jones were much more focused. I am naturally very aware that my judgment received brutal criticism by the two members of the Court of Appeal who were family practitioners, but I stand by my comments in paragraphs 475 to 484 thereof where I said:
"Final general comments for consideration by the profession
475. In making these comments I am acutely aware that (a) in cases I hear I am not privy to discussions between the parties and their advisers, (b) my practice at the bar was not in this field and so my relevant litigation experience is primarily in the field of disputes between shareholders and business partners and litigation relating to private companies and businesses, (c) a great many claims for ancillary relief settle, (d) I only see a small proportion of cases and, save on appeals, they are "big money cases" and (e) as demonstrated by this case (and those I mention below) the general approach, practice and expertise of those who specialise in these cases results in many aspects of them being well prepared and presented.
476. But, in three recent decisions of mine (D v D and B Ltd  2 FLR 653, R v R  EWHC 1267 (Fam) and H v H  EWHC 1549 (Fam)) and this case I have reached the conclusion that there were significant flaws in the results of their preparation and presentation, and it is this (and the criticisms made by Moylan J of the presentation of the case in H v H  2 FLR 2092, which I agree with) that have caused me to invite the profession carefully to consider individually, and as a specialist group, whether they should review and change their general approach to the preparation and presentation of "big money" cases.
477. At the heart of the flaws I have identified in the cases mentioned is the point that in my view there have been failures to properly identify the issues and, by reference to them, properly to identify (a) the findings the court is being invited to make and the reasons why they are relevant, (b) the facts and matters the court is being asked to find as the basis for those findings and (c) the evidence that is needed to achieve these goals. To my mind, all these steps are an essential and basic part of the efficient preparation and presentation of a case because they constitute the essential identification of the facts and matters relied on by each party and how they will set about proving them. So, they are an integral part of the process of establishing the building blocks of the case to be presented by the parties to the court as to how it should exercise its broad statutory discretion.
478. In my view, the points that the court is exercising a broad discretion, and that in assessing the impact of a number of factors necessarily has to take a broad approach, do not support a conclusion that the nuts and bolts or building blocks of litigation should be approached broadly, or with a broad brush, leaving the court, for example:
(i) to weed out and identify the relevant allegations from discursive affidavits and/or valuations or budgets that (a) do not cover certain relevant issues or items, and/or (b) do not provide proper information as to how they have been prepared and are supported,
(ii) to embark on the oral evidence without (a) the facts and matters that each side is inviting the court to find, and by reference to them (b) the factors that they assert are important to the exercise of the statutory discretion, being defined, and then
(iii) to reach findings (a) on generalised assertions and evidence and inferences based thereon, and/or (b) without central points being covered by the evidence, and/or (c) without appropriate disclosure in respect of the issues raised, and/or (d) from extreme positions adopted by the parties without proper attention being paid to the middle ground, and/or (e) by reference to a number of submissions or arguments directed at the client rather than the judge.
479. Each of the above has occurred in one or more of the cases I have mentioned at the start of this part of this judgment.
480. Indeed, in my view the very nature of the overall statutory task, and the broad discretion the court has to exercise in performing it, highlight the need to carry out the basic tasks I have mentioned to identify the facts and matters relied on, and thus the building blocks for the rival arguments as to the assets that are the subject of the s. 25 exercise and how that exercise should be carried out by the court. It seems to me that this should save money and promote the fair resolution of cases.
481. Experience in other fields (e.g. public law Children Act cases, Directors' Disqualification and indeed the history relating to whether proceedings should be started by originating summons or writ and now by a Part 8 claim or claim form) show that the presentation of cases through affidavits and generalised and brief statements of issues is not the best way of presenting disputes of fact and thus, where such disputes exist, the factors that parties invite the court to take into account.
482. So the process of Forms A and E, general identification of the issues through a short statement of issues couched in general and brief terms, questionnaires and s. 25 affidavits does not readily lend itself to a clear and succinct identification of the building blocks of the rival contentions, particularly when there are disputes of fact to be resolved. No doubt this process provides other advantages particularly at the early stages of proceedings and in smaller cases. It is also the basic procedure that has to be followed. But this does not mean that it cannot be supplemented where appropriate.
483. I agree with the suggestion made by counsel for the wife that in many cases after a failed FDR it would be appropriate for directions to be given for an exchange of documents identifying the building blocks of each side's case, particularly when there are disputes of fact and, even more so, if allegations of dishonesty are being advanced. It seems to me that often no such exercise is carried out, or committed to paper, before the preparation of skeleton arguments which is obviously much too late to inform the process of gathering evidence, and in any event often such skeletons do not set such matters out.
484. To my mind, by the time of an FDR each side should have identified the building blocks of their respective cases. Indeed, the assessment of them and their product is at the heart of an FDR. So the process of considering them should have started well before the FDR, and reducing them to writing after it should not be a burdensome or particularly expensive task. In my view, it will often be very helpful to set them out in an exchange of documents, and therefore I invite practitioners and judges after a failed FDR to consider carefully what should be done to clearly identify the building blocks of the cases advanced by the parties. I also invite the parties to consider setting them out in writing in an open form before an FDR.
485. The costs of fighting a big money case are very considerable both in terms of money and emotion. There are public as well as private interests in ensuring that the litigants are getting value for money and thus, in my view, in the profession reviewing their approach to see if improvements can be made to it."
8. I am aware that some of my colleagues hold similar views.
9. The written submissions of counsel did not seek to explain or justify the failure to gather relevant information in this case. Rather, they start their written submissions by asserting, in my view correctly, that identifiable problems in respect of cases of this type are that: (a) costs are too high, (b) relevant issues are not clearly defined, (c) the necessary evidence for the issues to be determined is not produced in a timely fashion, (d) inconsistent judicial approach not only within cases but within appellate judgments, and (e) the principles upon which the court determines the issues and quantifies awards are regularly subject to redefinition. The first three points, and in particular the second and third points, are a damning, but in my view inevitable, acknowledgment by specialist counsel of the product of the present procedural approach to the preparation of such cases for trial. The last two points are fair comments on the application of the substantive law by the courts and echo the point made during the hearing that the law has got itself into a terrible tangle since White v White, particularly in respect of the sharing rationale.
10. I turn to the product of the preparation of this case. As I have said, it resulted in an adjournment of the final hearing because central legal and factual issues had not been identified. It is another case to which many of the comments in paragraph 478 of my judgment in Jones apply.
11. However, I hasten to add that in giving this judgment I am not seeking to criticise those involved in this case. Rather, I am pointing to what I believe are defects in the general procedure, practice and approach (and so the system and its regular application) to cases of this type that has developed over the years and was applied here. This is why I have not named the representatives or the parties. Also, in my view, judges can best draw attention to the existence of such defects through judgments.
12. A central issue was the application of the sharing rationale or principle to a hotel. At the start of the hearing, it was asserted by the husband and accepted by the wife in their s. 25 statements and written submissions, that the husband's father had given the hotel to the husband. It was common ground that a company in which the parties were both shareholders (a) had been a tenant of the hotel, and (b) had both run the hotel business and sublet it to another operator of a hotel business. It was also common ground that both husband and wife had been active in the business of running the hotel.
13. So, the subject matter of the relevant gift and, on the husband's case, of a non-matrimonial asset was the freehold of the hotel rather than its business. The wife was running a case that the sharing rationale applied with full force to the hotel, as well as to the hotel business, and that it should not be treated as a non-matrimonial asset. She was doing so on the basis that the work the parties did on and at the hotel was a joint enterprise carried out against the background of an expectation that the property would be a joint asset.
14. Early in the trial, I asked to see the valuation of the hotel. That valuation (as is common with hotels) was based on the income and profit of the hotel business and so it was not a valuation of the subject matter of the alleged (and accepted) gift. When this was pointed out, leading counsel for both parties immediately and correctly accepted that that basis of valuation was not appropriate, or at least that a further valuation of the bricks and mortar was essential. Why the lack of an essential valuation was not identified before the trial started was, and remains, a mystery. Examples of similar missing valuations can be found in both of the first two cases cited in paragraph 476 of my judgment in Jones.
15. Fortunately, in this case the appropriate valuation was obtained quickly from the valuers and this failure in preparation did not cause any real difficulty.
16. But this may well not have turned out to be the case in the middle of the trial and the failure to have the most relevant valuation of the hotel before the court was a serious omission that indicates that the preparation of the case was defective.
17. I also asked that I be directed to the documents effecting and recording the alleged (and accepted) gift. It seems to me that basic and early steps in the preparation of the cases of both parties relating to the hotel (and the business carried on at it) should have included:
i) disclosure and inspection of the relevant transfer by way of gift and any background documents concerning it and why it was made,
ii) disclosure and inspection of the leases of the hotel, and the books and records of the relevant companies involved in the hotel business, and
iii) by reference to those documents, and the instructions on them and generally, an investigation of the manner in which, and by reference to what interests in the property, the hotel business was carried on.
18. The information to which I was referred in response to my request was limited and despite efforts to get more information this remained the case when the hearing was adjourned.
19. However, the limited information indicated that the relevant transfer of the hotel was not by the husband's father to the husband, but by a company controlled by the husband's father and mother to the husband. Plainly, this triggered a number of issues as to (a) how the company was able to, and did, make a valid and effective gift to the husband, and (b) the corporate and fiscal consequences of that transaction. Such matters could have a very significant impact on the s. 25 exercise and, in particular, the sharing rationale.
20. Further, the limited information unsurprisingly indicated that the terms of the leases of the hotel granted to the parties' company might well be relevant to the arguments advanced by both parties, and could give rise to issues concerning conflict of interest and breach of fiduciary duties. This turned out to be the case because they contained an option to purchase the freehold.
21. Also, by the time of the adjournment, there were still significant gaps in the material provided to the court concerning both (a) the background to, and completion of the alleged gift, and (b) the legal relationships between the relevant people and companies concerned or interested in the running of the hotel based on their agreements, discussions and understandings.
22. By this stage, around £1 million in costs had been expended but much uncertainty and lack of information about important matters existed. However, one thing was very clear from the limited information that had been gathered, and this was that the preparation of the case had failed to identify material concerning the hotel and the business carried on at it that would almost inevitably have a significant impact on the cases being advanced by both parties. So, it was correctly recognised by counsel for both parties that the trial could not continue on the basis of the information then available, and that there was a need for the parties to gather further information and evidence and, in the light of that, to consider their positions at law.
23. This result is lamentable.
24. I am not in a position to say whether a different approach that, before trial, had identified and analysed the documentary and other evidence concerning the property and commercial issues that were centrally relevant to the application of the sharing rationale to the hotel and the hotel business, would have resulted in a saving of costs.
25. As I have explained, the adjournment was granted so that relevant additional material could be gathered and prepared. But, on the documents I have seen there would have been a significant risk that, if the parties had not settled, the court would still not have been able to make an award in this case, on an evidence based approach, and with the benefit of submissions from all relevant interested parties.
26. So, if the parties had not settled, there would have been a significant risk that there would have had to have been another adjournment for further investigation, and possibly to allow for the joinder of other parties. Inevitably, this would have caused further expense.
27. That risk has been averted by the agreement reached after the parties were alerted to (a) the fact that the husband's father did not own the hotel, and so did not directly give it to his son, (b) the existence of an option to purchase the hotel in the leases of it granted to the parties' company, and (c) gaps in the relevant information. So, they must have reached their agreement with their eyes open to the possible risks, problems and issues triggered by these matters.
28. That being so, it seems to me that the rationale or principle of autonomy points strongly and decisively in favour of the court approving their agreement, and making an order that reflects its terms, on the basis that these risks, problems and issues have been considered and factored in by the parties by reference to the information they have. So, to my mind, even if these risks, problems and issues would have precluded the court from making a fair award on a properly informed evidential basis if the case had continued, their existence does not prevent the court from making an order based on the agreement of the parties. Accordingly, I made such an order.
29. In the joint written submissions provided to me, counsel set out a number of causes for the problems they identify (see paragraph 9 above). I acknowledge that these causes exist, and that there are aspects of this type of litigation that cause problems that are not found, or not found to such an extent, in litigation in other fields. Not least, as counsel pointed out, these include the emotional impact on litigants of divorce, the wide statutory discretion, the point that the litigation is rarely "single issue" litigation, and the wide range of potential outcomes.
30. I would add that, in my view, the application of the sharing rationale, particularly in non-paradigm cases, and so where it does not apply with full force, has introduced into this field of litigation property and commercial issues which the present system was not designed to deal with, and which historically practitioners in this field have not had to deal with.
31. These property and commercial issues have introduced a need (a) to identify property interests by applying property, company, trust and tax law, (b) to consider commercially and pragmatically viable options, particularly for private companies that are difficult to value, whose shares may not have a market, which it may be unfair to sell and which cannot provide funding to meet a clean break solution, (c) to consider, on an asset and case specific basis, apportionment and division of assets and their value at various times and (d) to identify relevant matrimonial choices. This is a far cry from an approach based on the payee's reasonable requirements and, it follows that, a system that has been developed against that overall approach (found to be wrong in White), is highly likely to need significant adjustment, that involves significant changes in the mind set of those applying it, to focus on the legal, commercial and evidential issues that arise and form the essential building blocks upon which the s. 25 exercise now has to be carried out.
32. Problems of the types I have identified, and which were acknowledged to exist by counsel, relate primarily to big money cases, and disproportionate costs burdens are more likely to arise in cases where the money is not that big.
33. In my view, the key to their solution is that in those cases there should be a change of practice to ensure that at an early stage the relevant issues, and thus the relevant facts and factors, that the court will be invited to find and take into account are identified. It this is done properly, and at an appropriate stage, it should provide the platform for:
i) the identification of the documents that need to be produced, inspected and considered; (here the transfer of the hotel, the leases, company documents and documents relating to the transfer and the leases – which it seems were not properly disclosed, sought or considered),
ii) the identification of the expert evidence that needs to be gathered, and so the drafting of appropriately focused instructions to the experts; (here the valuation of the freehold of the hotel – which was not done before trial), and
iii) the identification of the other evidence that needs to be gathered, which will generally need to be served much earlier than is often now the case; (here the husband's explanation of the gift and the wife's case that the freehold of the hotel should be treated as a matrimonial asset – both of which were deficient).
34. If this change is it to bring about a significant improvement it will have to be accompanied by a change in approach by practitioners and courts to the preparation of cases for hearing that adds a focus on:
i) the property and other issues referred to in paragraph 31,
ii) the application of the relevant substantive law to those issues,
iii) the law of evidence, and
iv) the range of practical and commercial options available to achieve a fair result.
The introduction of such a change will lead to the lawyers conducting the case considering, at an early stage, what legal issues arise in the identification and proof of the property, commercial and other issues that form the building blocks of the case.
35. To provide the starting point for this change, it seems to me that shortly after the exchange of Form Es each party could identify, in a more detailed way than is done at present:
i) the relief he or she seeks, or is likely to seek, and why, and
ii) the property (in the sense of ownership) and commercial issues he or she asserts arise, or are likely to arise, and why.
36. The equivalent is done in other types of case where similar property and commercial issues are raised without the benefit of disclosure through a process analogous to Form Es. At that stage, the relief would not have to be quantified, and if it was asserted that assets had not been fully or properly disclosed to enable this step to be completed this, and the reasons for it, could be identified and relief sought to deal with it. Armed with this exchange of information, consideration could then be given to whether there should be a departure from the standard procedure of questionnaires and affidavits (often served very late in the day) and, more generally, to the best procedural route to identify in a sufficiently detailed way:
i) the property and commercial issues and the other factors that need to be taken into account in the s. 25 exercise, and thereby the material that needs to be disclosed and gathered, and the explanations that each party has to give in respect of relevant transactions or marital choices,
ii) the range of options which the court will be, or is likely to be, invited to consider,
iii) the reasoning that will be, or is likely to be, advanced by the parties as to why the solution he or she advances by reference to that range is the correct one, and thus
iv) the facts and factors each party will be, or is likely to be, seeking to prove and invite the court to take into account.
37. To my mind, these are basic ingredients to the proper preparation of contested big or biggish money cases because they provide the platform for the proper identification of what is agreed, and of the documentary and oral evidence that should be put before the court to enable:
i) the parties to ask focused questions and to make focused submissions, and
ii) the court to carry out its fact finding task on the best available evidence, and thereby set the base for its discretionary task.
38. The submission that such steps do not form part of the way financial remedy cases are prepared and presented in the Family courts is true, or often true. To my mind this is very unfortunate because the result is often that central aspects of the cases are not as well prepared and presented as they should be.
39. I direct that this judgment is to be a public document and express the hope that, as a matter of some urgency, the profession and the courts address ways of improving the preparation and presentation of big or biggish money cases, by reference to the rationales that now fall to be applied by the court in resolving them on an evidence based approach.
40. I recognise that if this hope is fulfilled it is likely that it will invoke a debate in which deeply rooted views that differ from mine will be raised.
41. But, to my mind, this is another case that shows that this debate should take place to promote the interests of the parties to big or biggish money cases, and in the public interest.