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Judgments - Miller (Appellant) v. Miller (Respondent) and McFarlane (Appellant) v. McFarlane (Respondent)

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    26.  This difference in treatment of matrimonial property and non-matrimonial property might suggest that in every case a clear and precise boundary should be drawn between these two categories of property. This is not so. Fairness has a broad horizon. Sometimes, in the case of a business, it can be artificial to attempt to draw a sharp dividing line as at the parties' wedding day. Similarly the 'equal sharing' principle might suggest that each of the party's assets should be separately and exactly valued. But valuations are often a matter of opinion on which experts differ. A thorough investigation into these differences can be extremely expensive and of doubtful utility. The costs involved can quickly become disproportionate. The case of Mr and Mrs Miller illustrates this only too well.

    27.  Accordingly, where it becomes necessary to distinguish matrimonial property from non-matrimonial property the court may do so with the degree of particularity or generality appropriate in the case. The judge will then give to the contribution made by one party's non-matrimonial property the weight he considers just. He will do so with such generality or particularity as he considers appropriate in the circumstances of the case.

    28.  I must mention a further matter where flexibility is important. In big money cases, the capital assets are more than sufficient to meet the parties' financial needs and the need for either party to be compensated when one party's earning capacity has been advantaged at the expense of the other party. In these cases, should the parties' financial needs and the requirements of compensation be met first, and the residue of the assets shared? Or should financial needs and compensation simply be subsumed into the equal division of all the assets?

    29.  There can be no invariable rule on this. Much will depend upon the amounts involved. Generally a convenient course might be for the court to consider first the requirements of compensation and then to give effect to the sharing entitlement. If this course is followed provision for the parties' financial needs will be subsumed into the sharing entitlement. But there will be cases where this approach would not achieve a fair outcome overall. In some cases provision for the financial needs may be more fairly assessed first along with compensation and the sharing entitlement applied only to the residue of the assets. Needless to say, it all depends upon the circumstances.

Periodical payments and the clean break principle

    30.  So far I have been almost entirely concerned with lump sum payments as distinct from periodical payments. I have therefore made only passing mention of an important principle now embodied in the statute: the clean break principle. This principle is relevant in the McFarlane appeal. Two issues arise in this regard. The first concerns the reach of periodical payments orders. The question is whether periodical payments orders may be made for the purpose of providing compensation as distinct from maintenance.

    31.  I see no difficulty on this point. There is nothing in the statutory ancillary relief provisions to suggest Parliament intended periodical payments orders to be limited to payments needed for maintenance. Section 23(1)(a) empowers the court, in quite general language, to order one party to the marriage to make to the other 'such periodical payments, for such term, as may be specified in the order'. In deciding whether, and how, to exercise this power the statute requires the court to have regard to all the circumstances of the case: section 25(1). The court is required to have particular regard to the familiar wide-ranging check list set out in section 25(2). These provisions, far from suggesting an intention to restrict periodical payments to the one particular purpose of maintenance, suggest that the financial provision orders in section 23 were intended to be flexible in their application.

    32.  In particular, I consider a periodical payments order may be made for the purpose of affording compensation to the other party as well as meeting financial needs. It would be extraordinary if this were not so. If one party's earning capacity has been advantaged at the expense of the other party during the marriage it would be extraordinary if, where necessary, the court could not order the advantaged party to pay compensation to the other out of his enhanced earnings when he receives them. It would be most unfair if absence of capital assets were regarded as cancelling his obligation to pay compensation in respect of a continuing economic advantage he has obtained from the marriage.

    33.  It was not always so. At its inception the court's power to order the husband to make periodic payments to the wife was expressly limited to payments for her maintenance and support: section 1 of the Matrimonial Causes Act 1866. The rationale underlying this power seems to have been the wife's necessity. At that time the husband owned the entirety of the wife's property: Leslie v Leslie [1911] P 203, 205.

    34.  Times and attitudes have changed, and with them the content and language of the ancillary relief provisions. The history was conveniently summarised by Thorpe LJ in the McFarlane case at [2005] Fam, 171, 196-198, paras 87-99. The wife's financial needs, or her 'reasonable requirements', are now no more a determinative or limiting factor on an application for a periodical payments order than they are on an application for payment of a lump sum. I agree with Charles J's observations to this effect in Cornick v Cornick (No 3) [2001] 2 FLR 1240, para 106.

    35.  This leads me to the second issue regarding periodical payments orders. It concerns the impact of the clean break principle on periodical payment orders made to provide compensation to a disadvantaged party. There is of course a significant practical difference between providing compensation by appropriate division of existing capital assets and providing compensation by means of a periodical payments order. Of its nature a lump sum payment is once and for all. A lump sum payment represents, to that extent, the financial closure of a failed marriage. It draws a line under the past. Periodical payments represent the opposite. Future earnings and future payments lie in the future. They are a continuing financial tie between the parties. Today the undesirability of such continuing ties is regarded as self-evident. The modern approach was expressed succinctly by Lord Scarman in his familiar words in Minton v Minton [1979] AC 593, 608:

    'An object of the modern law is to encourage [the parties] to put the past behind them and to begin a new life which is not overshadowed by the relationship which has broken down.'

    36.  So I turn to the statute. Section 25A provides:

    '(1) Where on or after the grant of a decree of divorce or nullity of marriage the court decides to exercise its powers under section 23(1)(a) [power to order periodical payments] … in favour of a party to the marriage, it shall be the duty of the court to consider whether it would be appropriate so to exercise those powers that the financial obligations of each party towards the other will be terminated as soon after the grant of the decree as the court considers just and reasonable.

    (2) Where the court decides in such a case to make a periodical payments … order in favour of a party to the marriage, the court shall in particular consider whether it would be appropriate to require those payments to be made … only for such term as would in the opinion of the court be sufficient to enable the party in whose favour the order is made to adjust without undue hardship to the termination of his or her financial dependence on the other party.'

    37.  This statutory statement of principle raises a question of a similar nature to that affecting the whole of section 25. By section 25A(1) and (2) duties are imposed on the court but the court is left with a discretion. The court is required to 'consider' whether it would be 'appropriate' to exercise its powers in a particular way. But the section gives no express guidance on the type of circumstance which would render it inappropriate for the court to bring about a clean break.

    38.  In one respect the object of section 25A(1) is abundantly clear. The subsection is expressed in general terms. It is apt to refer as much to a periodical payments order made to provide compensation as it is to an order made to meet financial needs. But, expressly, section 25A(1) is not intended to bring about an unfair result. Under section 25A(1) the goal the court is required to have in mind is that the parties' mutual financial obligations should end as soon as the court considers just and reasonable.

    39.  Section 25A(2) is focused more specifically. It is concerned with the termination of one party's 'financial dependence' on the other 'without undue hardship'. These references to financial dependence and hardship are apt when applied to a periodical payments order making provision for the payee's financial needs. They are hardly apt when applied to a periodical payments order whose object is to furnish compensation in respect of future economic disparity arising from the division of functions adopted by the parties during their marriage. If the claimant is owed compensation, and capital assets are not available, it is difficult to see why the social desirability of a clean break should be sufficient reason for depriving the claimant of that compensation.

    40.  Against that background I turn to the facts and particular issues raised by these appeals, starting with Mr and Mrs Miller.

The Miller marriage

    41.  Mr and Mrs Miller were engaged to be married in July 1999 and they married a year later, on 14 July 2000. They did not live together before their marriage. They separated in April 2003. So the marriage lasted two years and nine months. The marriage was childless. Sadly, the wife had a miscarriage. When they separated the husband was aged 39 and the wife was 33.

    42.  The parties' backgrounds can be summarised as follows. The wife was born and brought up in the United States. She acquired expertise in the field of public relations. In February 1995 she moved to England to take up employment in Cambridge. She was in charge of investor relations at a pharmaceutical company. In March 2000, in anticipation of her marriage, she changed her job. She left her Cambridge flat and moved to London to work for a financial public relations firm as an associate partner earning £85,000 per annum.

    43.  The husband was born and brought up in England. He married his first wife in 1987 and was divorced in 1992. He has had a highly successful career in asset management. After graduating from Birmingham University he trained as an accountant. In 1994 he joined Jupiter Asset Management. He was a senior fund manager and became a main board director. In 1995 Jupiter was taken over by Commerzbank. Commerzbank gave Jupiter's employees a share of the equity to be bought back in the year 2000 on the basis of a profits-related formula. Jupiter was extremely successful, and the profits-related formula required Commerzbank to pay the staff of Jupiter £500 million. The husband's share was a cash payment of £13 million net of tax. He received this in March 2000.

    44.  The founder of Jupiter was Mr John Duffield. Relations between him and Commerzbank deteriorated, and they parted company acrimoniously in May 2000. Mr Duffield commenced an action for wrongful dismissal. The husband saw that his future lay with Mr Duffield, but at that time both he and Mr Duffield were bound to Commerzbank by non-competition agreements. In late May they agreed between themselves that, subject to being released from these restrictions, the husband would join Mr Duffield in a new company, New Star Asset Management Group Ltd. The dispute between Mr Duffield and Commerzbank was settled in November 2000 on terms which included the release of the two men from their employment restrictions. The husband then left Jupiter and joined New Star as chief investment officer in January 2001. He brought with him the management of three funds having total assets of £240 million. He paid £200,000 for 200,000 shares in New Star.

    45.  Mr and Mrs Miller separated in April 2003 on the day after the husband told the wife the marriage was at an end and that he had formed a relationship with the woman to whom he is now married. In July 2003 the husband petitioned for divorce, alleging unreasonable behaviour on the part of the wife. She refuted this allegation and cross-petitioned, alleging adultery. By consent the suit proceeded on the wife's petition and a decree of divorce nisi of 16 February 2004 was made absolute on 17 February 2005.

    46.  Meanwhile the wife sought financial ancillary relief. At the hearing before Singer J in October 2004 the husband's assets were worth about £17.5 million, plus whatever value should be attributed to his 200,000 shares in New Star. This figure of £17.5 million compared with £16.7 million when the parties married in July 2000, and £17 million when they separated in April 2003. The husband's basic salary at New Star was £181,000. His bonus for 2003 was £3 million and for 2004 £1.2 million.

    47.  The wife's financial circumstances contrasted sharply. At the time of the hearing she had assets worth £100,000, of which half were locked in pension funds. If she had paid her outstanding costs she would have been more than £300,000 in debt.

The hearing before the judge

    48.  The judge awarded the wife a capital sum of £5 million, made up of the former matrimonial home in London, worth £2.3 million, and a lump sum of £2.7 million. In addition she received goods worth about £150,000.

    49.  It is impossible to do justice to Singer J's wide-ranging judgment in a brief summary. Three points can be noted. First, the judge found he could not place a firm value on the husband's New Star shares. He said their present value was inestimable and their future value unfathomable. Their current sale value was variously estimated by the parties' experts at £12 million and £18 million. In fact the shares were subject to restrictions which precluded their current sale. But the judge was reasonably confident that, unless the husband meanwhile triggered an obligation to sell his shares, in December 2006 he was likely to receive £6 million for 75,000 out of his total holding of 200,000 shares.

    50.  Secondly, the judge had before him written and oral evidence from both parties about the reasons why the marriage had failed. The judge held that nothing either spouse alleged against the other remotely constituted conduct of such gravity that it would be inequitable to disregard it. But he added that, having heard this evidence, he regarded himself as better able to assess the wife's claims. He held it would be unfair to concentrate solely on the bare chronology without acknowledging that the wife did not seek to end the marriage. Nor did she give the husband any remotely sufficient reason for doing so.

    51.  Thirdly, the judge considered the court's approach to cases where the marriage was short but wealthy. He held that in the present case the key feature was that the husband gave the wife a legitimate expectation she would on a long-term basis be living on a higher economic plane than the rented flat and her £85,000 job had afforded her when she left her flat and her job to live with the husband as his wife at the house he had bought for that purpose. The judge said, in paragraph 65:

    '… the award should recognise that H has by this marriage, notwithstanding its short duration, given W a reasonable expectation that her life as once again a single woman need not revert to what it was before her marriage, and that she should be able to live at a significantly better standard in terms of accommodation and spendable income, even if at one which does not approach the level that H can afford for himself and his new family.'

The judge concluded that a global award equivalent to £5 million, plus the agreed furniture and other goods, was a fair outcome irrespective of whatever value the husband might in due course achieve for the New Star shares.

The hearing in the Court of Appeal

    52.  The husband appealed. The Court of Appeal, comprising Thorpe and Wall LJJ and Black J, dismissed the appeal. Thorpe LJ held that the judge's award could not be labelled plainly excessive, although it was at the top end of the permissible bracket. The judge was entitled to take into account that the husband was to blame for the breakdown of the marriage even though his conduct would not merit advancing under section 25(2)(g) of the Matrimonial Causes Act 1973 as amended. The husband's misconduct could be used as a counter-balancing factor to the brevity of the marriage. Further, the judge was entitled to regard the wife's legitimate expectation of living to a higher standard as the ex-wife of Mr Miller as the 'key element' in the case.

    53.  Wall LJ agreed that the reasons for the breakdown of the marriage were relevant in this case. His perception of the award overall was strongly influenced by the size of the husband's wealth. The husband was a very rich man. An overall 'clean break' award of £5 million was not excessive or disproportionate. Black J agreed with both judgments.

The pre-White short marriage cases

    54.  Several issues arise from these judgments. The first concerns the relevance today of the approach to short marriages enunciated in the 1980s. In the 1980s and earlier there were several reported cases concerning short marriages. The facts vary widely, but in these cases the general approach to division of assets was to concentrate on making provision for the financial needs of the claimant, usually the wife, and on compensating her for any financial disadvantage she had suffered from the breakdown of the marriage. To greater or lesser extent this approach appears in S v S [1977] Fam 127, H v H (Financial Provision: Short Marriage) (1981) 2 FLR 392, Robertson v Robertson (1983) 4 FLR 387, Attar v Attar (no 2) [1985] FLR 653 and Hedges v Hedges [1991] 1 FLR 196.

    55.  On the present appeal Mr Turner QC submitted this approach has not been invalidated by the decision in the White case. Both Singer J and the Court of Appeal declined to adopt this submission. They were right to do so. In the 1980s cases attention was directed predominantly at the wife's needs. There may be cases of short marriages where the limited financial resources of the parties necessarily mean that attention will still have to be focused on the parties' needs. That is not so in big money cases. Then the court is concerned to decide what would be a fair division of the whole of the assets, taking into account the parties' respective financial needs and any need for compensation. The court will look at all the circumstances. The general approach in this type of case should be to consider whether, and to what extent, there is good reason for departing from equality. As already indicated, in short marriage cases there will often be a good reason for departing substantially from equality with regard to non-matrimonial property.

'Legitimate expectation'

    56.  The next issue concerns the feature described by the judge as the key feature in the case. The judge said the key feature was that the husband gave the wife a legitimate expectation that in future she would be living on a higher economic plane.

    57.  By this statement I doubt whether the judge was doing more than emphasise the importance in this case of the standard of living enjoyed by Mr and Mrs Miller before the breakdown of their short marriage. This is one of the matters included on the statutory check list. The standard of living enjoyed by the Millers during their marriage was much higher than the wife's accustomed standard and much higher than the standard she herself could afford.

    58.  If the judge meant to go further than this I consider he went too far. No doubt both parties had high hopes for their future when they married. But hopes and expectations, as such, are not an appropriate basis on which to assess financial needs. Claims for expectation losses do not fit altogether comfortably with the notion that each party is free to end the marriage. Indeed, to make an award by reference to the parties' future expectations would come close to restoring the 'tailpiece' which was originally part of section 25. By that tailpiece the court was required to place the parties, so far as practical and, having regard to their conduct, just to do so, in the same financial position as they would have been had the marriage not broken down. It would be a mistake indirectly to re-introduce the effect of that discredited provision.

Conduct

    59.  Next is the question of the parties' conduct. The relevance of the parties' conduct in financial ancillary relief cases is still a vexed issue. For many years now divorce has been based on the neutral fact that the marriage has broken down irretrievably. Some elements of the old concept of fault have been retained but essentially only as evidence of irretrievable break down. As already noted, parties are now free to end their marriage and then re-marry.

    60.  Despite this freedom, there remains a widespread feeling in this country that when making orders for financial ancillary relief the judge should know who was to blame for the breakdown of the marriage. The judge should take this into account. If a wife walks out on her wealthy husband after a short marriage it is not 'fair' this should be ignored. Similarly if a rich husband leaves his wife for a younger woman.

    61.  At one level this view is readily understandable. But the difficulties confronting judges if they seek to unravel mutual recriminations about happenings within the marriage, and the undesirability of their attempting to do so, have been rehearsed many times. In Wachtel v Wachtel [1973] Fam 72, 90, Lord Denning MR led the way by confining relevant misconduct to those cases where the conduct was 'obvious and gross'.

    62.  The Law Commission then considered the problem. The commission concluded that courts should be obliged to take account of conduct where to do otherwise would offend a reasonable person's sense of justice. To this end the court should be free to examine sufficient of the matrimonial history to enable the judge to 'get a feel of the case': see the Law Commission report on Family Law - The Financial Consequences of Divorce, (1981) Law Com no 112, paras 36-39.

    63.  Parliament gave effect to this recommendation in paragraph (g) in the new section 25(2) introduced by the Matrimonial and Family Proceedings Act 1984. One of the matters to which the court should have regard is 'the conduct of each of the parties, if that conduct is such that it would in the opinion of the court be inequitable to disregard it'. It is implicit in this provision that conduct outside this description is not conduct which should be taken into account.

    64.  This history is well known. I have mentioned it only because there are signs that some highly experienced judges are beginning to depart from the criterion laid down by Parliament. In G v G (Financial Provision: Separation Agreement) [2004] 1 FLR 1011, 1017, para 34, Thorpe LJ said the judge 'must be free to include within [his discretionary review of all the circumstances] the factors which compelled the wife to terminate the marriage as she did'. This approach was followed by both courts below in the present case. Both the judge and the Court of Appeal had regard to the husband's conduct when, as the judge found, that conduct did not meet the statutory criterion. The husband's conduct did not rank as conduct it would be inequitable to disregard.

    65.  This approach, I have to say, is erroneous. Parliament has drawn the line. It is not for the courts to re-draw the line elsewhere under the guise of having regard to all the circumstances of the case. It is not as though the statutory boundary line gives rise to injustice. In most cases fairness does not require consideration of the parties' conduct. This is because in most cases misconduct is not relevant to the bases on which financial ancillary relief is ordered today. Where, exceptionally, the position is otherwise, so that it would be inequitable to disregard one party's conduct, the statute permits that conduct to be taken into account.

Contribution

    66.  A point of a similar nature concerns the approach to be adopted when evaluating the contributions each party made to the welfare of the family. Apparently, in this post-White era there is a growing tendency for parties and their advisers to enter into the minute detail of the parties' married life, with a view to lauding their own contribution and denigrating that of the other party. In the words of Thorpe LJ, the excesses formerly seen in the litigation concerning the claimant's reasonable requirements have now been 'transposed into disputed, and often futile, evaluations of the contributions of both of the parties': Lambert v Lambert [2002] EWCA Civ 1685; [2003] Fam 103, 117, para 27.

    67.  On this I echo the powerful observations of Coleridge J in G v G (Financial Provision: Equal Division) [2002] EWHC 1339 (Fam); [2002] 2 FLR 1143, 1154-1155, paras 33-34. Parties should not seek to promote a case of 'special contribution' unless the contribution is so marked that to disregard it would be inequitable. A good reason for departing from equality is not to be found in the minutiae of married life.

    68.  This approach provides the principled answer in those cases where the earnings of one party, usually the husband, have been altogether exceptional. The question is whether earnings of this character can be regarded as a 'special contribution', and thus as a good reason for departing from equality of division. The answer is that exceptional earnings are to be regarded as a factor pointing away from equality of division when, but only when, it would be inequitable to proceed otherwise. The wholly exceptional nature of the earnings must be, to borrow a phrase more familiar in a different context, obvious and gross. Bodey J encapsulated this neatly when sitting as a judge in the Court of Appeal in Lambert v Lambert [2003] Fam 103, 127, para 70. He described the characteristics or circumstances which would bring about a departure from equality:

    '.. those characteristics or circumstances clearly have to be of a wholly exceptional nature, such that it would very obviously be inconsistent with the objective of achieving fairness (i.e. it would create an unfair outcome) for them to be ignored.'

Mr Miller's appeal

 
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