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

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    69.  I accept the husband's contention that both the judge and the Court of Appeal misdirected themselves on the 'conduct' issue. Even so I would dismiss Mr Miller's appeal, largely for two reasons. The first concerns the increase in the husband's wealth during the marriage. The husband brought substantial wealth into the marriage at its outset. That was non-matrimonial property. That was a major financial contribution he made to the marriage. But it would be wrong to suppose that during the period of the marriage the husband's assets increased only by the comparatively modest amount of £300,000 or so represented by his property other than his New Star shares.

    70.  When the parties married New Star had not got off the ground, although some of the groundwork had been done. New Star then expanded and flourished, as a result of activities undertaken for the most part during the period of the marriage. New Star set itself to grow quickly, and it did so. By rights issues and placings spread over the period from March 2001 to December 2003 substantial numbers of shares were issued at prices ranging from £80 to £150 per share. As a result New Star paid out over £140 million in acquiring management of funds having assets worth the staggering amount of £3.73 billion. It is in this context that the experts' valuations of £12 million and £18 million for the husband's New Star shares, if they could currently have been sold, have to be seen.

    71.  Plainly the accretion to the husband's wealth during the marriage, as a result of work he did during the marriage, was very substantial indeed. Although the marriage was short, the matrimonial property was of great value. The gain in the husband's earned wealth during the marriage was huge.

    72.  Secondly, the judge was entitled to regard the high standard of living enjoyed by the parties during the marriage as a key feature of this case. That was not a standard of living the wife would be likely to achieve for herself.

    73.  Having regard to these two features I consider the sum of £5 million awarded by the judge is appropriate in this highly unusual case. The midway figure between the experts' valuations of the New Star shares was £15 million. Taking this as no more than some indication of the value of these shares, the husband's worth was of the very approximate order of £32 million. An award of £5 million, including in this the matrimonial home, represents less than one-third of the value of the New Star shares and less than one-sixth of the husband's total worth. An award of less than one-half of the value of the New Star shares reflects the amount of work done by the husband on this business project before the marriage.

The McFarlane marriage

    74.  Kenneth McFarlane and Julia Chocholowska married on 1 September 1984. They lived together for two years before then. There were three children of the marriage, a boy Jamie and two girls Sarah and Helen. They are now aged 16, 15 and 9 years. They are being educated at private schools. During their marriage the parties lived in south west London. They separated in December 2000. So the marriage lasted effectively for 16 years. A divorce decree nisi was made on 22 February 2002 and this was made absolute on 28 May 2003. The parties are now 46 years old.

    75.  By the time they married both parties had qualified professionally, the wife as a solicitor and the husband as a chartered accountant. They had each served their traineeship with leading City firms. After the birth of Jamie the wife returned to work. At the end of 1989 she moved to Freshfields, the well-known City firm of solicitors, where she worked a four-day week. In 1990 the husband became a partner in Touche Ross.

    76.  Until this time the wife earned as much as the husband. For a while she earned more than him. In 1991, before the birth of their second child Sarah, the parties agreed the wife should abandon her career and bring up the children on a day by day basis. They agreed to concentrate on the husband's career. Subsequently the wife did not return to work as a solicitor. On two occasions she began to re-train, first as a teacher and next as an independent financial adviser. The husband remained with Touche Ross and then its successor, Deloittes. He was the breadwinner for the family. He worked very hard and was, and continues to be, very successful.

    77.  In addition to the matrimonial home in Barnes, south-west London, the parties had a holiday home in Devon. At the trial the matrimonial home was valued at £1.5 million and the holiday home at £255,000. In June 2000 a flat in Clerkenwell, just north of the City, was bought in the husband's name for £415,000.

    78.  As to family income, the wife's income was minimal after she gave up work. In round figures the husband's gross partnership income rose from £455,000 in 1998-99 to £972,000 in 2000-01, the year of separation, and then to £1,286,000 in 2002-03. The corresponding net figures are £272,000, £579,000 and £753,000. The parties' standard of living rose as the husband's earnings increased and then as the mortgage on the matrimonial home was paid off over a period of five years. The wife's evidence was that the amount they spent on living costs, excluding school fees and mortgage repayments, rose from £66,000 in 1995 to £138,000 in 2000.

The hearing before the District Judge

    79.  After their separation the parties agreed on a broadly equal division of the capital assets of about £3 million owned by them. This capital was accumulated during their marriage, apart from an inheritance of about £40,000 the wife received from her father's estate. The parties agreed the wife should retain the matrimonial home and live there with the children. The husband was to have the holiday home in Devon, the flat in Clerkenwell and his partnership current account with Deloittes.

    80.  Before District Judge Redgrave it was common ground there was insufficient capital available to achieve a clean break. Further, it was common ground that the wife was entitled to a maintenance award on a joint lives or further order basis. The only substantial contentious issue was the level of the periodical payments for the wife and for the children. The parties gave oral evidence.

    81.  The wife estimated her income requirements at £215,000 per annum. Broken down, this was £87,000 for the three children and £128,000 for herself. This included private health insurance and some life insurance premiums. The husband estimated his personal spending requirements, excluding housing costs and pension provision, at £60,000 to £80,000 a year.

    82.  The husband's proposal was that he should make payments of £20,000 for each child, plus school fees, and £100,000 for the wife on a joint lives or further order basis, plus extras such as insurance. The wife sought £70,000 for the three children, plus school fees, and £275,000 for herself.

    83.  The judge's findings and conclusions can be summarised in this way. The wife was the primary carer of the children. Her financial needs were to maintain a home for herself and the parties' three children. This should be in the former matrimonial home. The wife had an earning capacity, but it was severely depressed by the length of time she had been out of the job market. Additionally, she was the single parent of three children, of whom the youngest was only six years old. It was unreasonable to expect her to take steps to acquire or improve her earning capacity until, at the very least, the youngest child reached secondary school age.

    84.  As to contributions to the family life, there was not a scintilla of criticism of the wife, either as a partner or as a mother. The parties' contributions to the marriage were of different but equal value. The judge said:

    'The agreed split of capital is a reflection of the equal but separate contributions that these parties made to a marriage which lasted 16 years and which produced three children.'

    85.  The judge noted that part of the overall circumstances was that the joint decision of the parties to concentrate on the husband's career in order to fund the family's lifestyle resulted in the greatest fruits of his endeavours being available towards the end of the marriage and after its breakdown. The spadework for these rewards was carried out over a long period, and it would be unfair to take the view that the wife had not contributed to the recent increases in the husband's earnings after the separation. The wife's contributions enabled the husband to create a working environment which had produced greater rewards, 'of which she should have her fair share'. She had continued to make a contribution to the family in the nurturing of the children in a single parent household. That contribution had not come to an end when the parties separated.

    86.  The judge concluded that £60,000 a year for the children's maintenance was reasonable and that the appropriate award for the wife was £250,000 a year. This was one-third of the husband's current net income. This amount 'reflects [the wife's] needs, obligations and the contribution that she has made over the years of the marriage'.

The appeals to the judge and the Court of Appeal

    87.  The husband appealed. The appeal was heard by Bennett J. He held that the effect of an award of maintenance at the rate of £250,000 was to give the wife an amount of money 'way above' her needs. The reality was that the husband would be paying the wife money likely to be saved and accumulated. That would subvert the principle that the purpose of periodical payments is maintenance and an award of capital is made once and once only. On this the district judge fell into error and her award should be set aside. In the exercise of his own discretion Bennett J ordered payment of £20,000 for each of the children and a reduced amount, of £180,000, for the wife. To that extent the husband's appeal succeeded. As before, the payments to the wife were to be made during the parties' joint lives or until the wife should remarry or further order.

    88.  The wife appealed to the Court of Appeal. She sought reinstatement of the district judge's order. The appeal was heard by Thorpe, Latham and Wall LJJ, in conjunction with an appeal from Bennett J in the case of Parlour v Parlour: [2005] Fam 171. On the appeals the court disagreed with Bennett J on the sole ground on which Bennett J considered the district judge had misdirected herself. Contrary to the view of Bennett J, the Court of Appeal held that in exceptional cases periodical payments orders can properly be used as a means to enable a payee to accumulate capital.

    89.  Nevertheless, when restoring the district judge's periodical payments order of £250,000 a year, the Court of Appeal limited its duration to five years. The court adopted this course because it was concerned, of its own motion, that by making a joint lives order in the present case the court would not be giving due effect to the clean break principle. The court was uneasy that a periodical payments award as large as £250,000 should be made for an indefinite period. The parties' presentation of the case as one for a joint lives order had diverted attention from the opportunity to achieve a clean break 'years before either party approached retirement'. Thorpe LJ preferred an order for periodical payments for an 'extendable' term of five years. After five years the court could reassess the prospects of a clean break in the light of the husband's capacity to re-mortgage his new home, the extent to which the wife had built up a capital reserve from the surplus of income over expenditure in the intervening years, and the revival of the wife's earning capacity: [2005] Fam 171, 192-193, para 70. Wall LJ was of the same view. He said that 'indeterminate and unfocused joint lives orders very substantially in excess of needs' are not within the statutory objective: para 138. From that decision the wife appealed to your Lordships' House.

Mrs McFarlane's appeal

    90.  The starting point of any discussion of the McFarlane case is to recognise its unusual combination of features. The parties' capital assets were insufficient to make an immediate clean break possible. That is not unusual. What is unusual is that, side by side with this (comparative) insufficiency of capital, there was a substantial excess of income. The husband's annual income was far in excess of the financial needs of the husband and of the wife even after they had separated. The latter feature is unusual. Normally the family income is not enough to meet the financial needs of both the husband and the wife after their combined household has split into two separate households. That is not so here.

    91.  A third feature is that the high level of the husband's earnings after the breakdown of the marriage was the result of the parties' joint endeavours at the earlier stages of his professional career. The wife gave up her career to devote herself to making a home for them both and for the children. As Bennett J noted, the husband was able to reap the benefits of the wife's contribution not just during the marriage. He continued to do so after the separation and after the divorce.

    92.  A fourth feature is that the career foregone by the wife was a professional career as successful and highly-paid as the husband's. This is not a case where the wife's future success was a matter for speculation. Speculation of this character is seldom helpful. Here the wife had a proven track record when the parties agreed she should give up her job. A fifth feature is that, as primary carer of the three children, the wife continued to be at an economic disadvantage and continued to make a contribution from which the children and, indirectly, the husband benefited. He was relieved of the day to day responsibility for their children.

    93.  Clearly in this situation the wife is entitled to a periodical payments order in respect of her financial needs. She needed money to live in the former matrimonial home which was to be the continuing home for her and the children. But it would be manifestly unfair if her income award were confined to her needs. This is a paradigm case for an award of compensation in respect of the significant future economic disparity, sustained by the wife, arising from the way the parties conducted their marriage.

    94.  With that in mind I have an initial difficulty with the approach of the Court of Appeal. Before the district judge the parties were agreed that the appropriate order was a joint lives order. The judge assessed the quantum at £250,000 a year. Although she did not quantify the two elements separately, it is clear that this amount was partly in respect of the wife's financial needs and partly in respect of what I have labelled compensation. Further, the district judge had the clean break principle well in mind. Having seen and heard the parties, she was 'satisfied that this is not a case where the wife could adjust, without undue hardship, to the termination of periodical payments in her favour'. Although contrary argument was not addressed to the district judge on this point, I can see no ground for disturbing this assessment. There is no reason to doubt this was her considered view. And she recognised that the joint lives award might well need to be revised in later years.

    95.  The Court of Appeal, however, seems not to have had the distinction between needs and compensation clearly in mind when considering the way ahead. The court appears to have treated the surplus of income over expenditure as simply a means whereby the wife could accumulate a capital reserve. But that would be to mistake the purpose of this part of the district judge's award.

    96.  This leads me to the point where I fundamentally disagree with the Court of Appeal: the replacement of a joint lives order with a five-year order. I agree with the Court of Appeal that when the husband has repaid the mortgage on his new home, and the wife's earning capacity has revived, the time may be ripe for a reassessment of the parties' position to see if a deferred clean break is practicable. A clean break might then be achievable by the court exercising its power to order the husband to make a lump sum payment to the wife as consideration for discharging his liability to make further periodical payments. The court has this power under section 31(7A) and (7B) inserted into the 1973 Act by section 66 of the Family Law Act 1996.

    97.  That is something which will merit careful consideration at a suitably early date. But I do not see how this leads to the conclusion that the district judge's joint lives order should be set aside in favour of an extendable five years' order. The practice in the family courts seems to be that on an application for extension of a periodical payments order made for a finite period the applicant must surmount a high threshold: Fleming v Fleming [2003] EWCA Civ 1841; [2004] 1FLR 667, 670, paras 12-14. In the present case it would be altogether inappropriate, indeed unjust, to make a five-year order and place the wife in that position when five years has elapsed. In the present case a five-year order is most unlikely to be sufficient to achieve a fair outcome. Further financial provision of some sort will be needed. So, far from compelling the wife to apply for an extension of a five-year order, and requiring her to shoulder the heavy burden accompanying such an application, it is more appropriate for the husband to have to take the initiative in applying for a variation of a joint lives order when he considers circumstances make that appropriate. Certainly the district judge cannot be said to have erred in principle in making a joint lives order, especially when this was common ground between the parties. I would allow this appeal and restore the order of District Judge Redgrave.

    98.  One final point should be mentioned. The amount of £250, 000 substantially exceeds the wife's financial needs. The district judge said it was for the wife to decide whether to make pension provision for herself, and whether to insure herself and the children against the risk of the husband's premature death. The Court of Appeal disagreed. The wife, the court said, must invest the surplus sensibly, or take the risk that her failure to do so might count against her on an application for discharge of the order.

    99.  On this point I largely agree with the Court of Appeal, but not wholly. When a review takes place the court will consider, in the light of the prevailing circumstances, what further amounts should be paid to the wife by way of periodical payments, or capitalised and paid as a lump sum if that is practicable, in respect both of needs and compensation. As to needs, the claimant's resources are always a matter to be taken into account. And claimants for financial ancillary relief are expected to manage their financial affairs sensibly and responsibly. Thus far I agree with the Court of Appeal. But the wife's claim for compensation stands differently. Her compensation claim is not needs-related; it is loss-related. So the compensation element of her claim is not directly affected by the use she makes of her resources.

LORD HOFFMANN

My Lords,

    100.  For the reasons given in the speech of my noble and learned friend Baroness Hale of Richmond I too would allow Mrs McFarlane's appeal and dismiss Mr Miller's appeal.

LORD HOPE OF CRAIGHEAD

My Lords,

    101.  I have had the privilege of reading in draft the speeches of my noble and learned friends Lord Nicholls of Birkenhead and Baroness Hale of Richmond. I would find it very difficult to say to which of them I would give the award if, like Paris on Mount Ida, I was forced to pass judgment on which of them offered the better guidance. The fact is that they complement each other. The clarity and simplicity which is to be found in Lord Nicholls' speech is matched by the immensely valuable account which Lady Hale gives of the law's development and of the way the principles on which it is based should be applied in practice. On all points that are relevant to the disposal of these appeals I am in full agreement with them both. For the reasons that they give I too would dismiss the appeal in Mrs Miller's case and allow the appeal in Mrs McFarlane's case.

    102.  I should like however to add some observations on the way the problem raised by these cases is currently dealt with in Scots law. This was referred to by counsel in both cases in the course of the argument. Mr Posnansky QC for the husband in Mrs McFarlane's case relied on the way the clean break principle is given effect to in the Family Law (Scotland) Act 1985. This was to support his submission that a fair outcome had been achieved by the order which the Court of Appeal made in her case. He said that the solution that Parliament thought appropriate in 1985 to achieve fairness in Scotland must be taken as a good guide to what the same Parliament had in mind as fair when it passed the corresponding legislation for England one year earlier. I do not think that the comparison which Mr Posnansky sought to draw stands up to examination. I should like to explain why.

The Scottish approach to fairness

    103.  The report of the Scottish Law Commission on Aliment and Financial Provision (Scot Law Com No 67) was submitted to the Lord Advocate on 17 July 1981 and ordered by the House of Commons to be printed on 4 November 1981. The report of the Law Commission on the Financial Consequences of Divorce (Law Com No 112) was submitted to the Lord Chancellor on 26 October 1981 and ordered by the House of Commons to be printed on 14 December 1981. A study of these reports shows that, despite their close proximity in dates, they proposed very different solutions to the basic problem as to how to reconcile the requirements of fairness with the desire for certainty.

    104.  As the Law Commission put it in para 19 of its report:

    "We believe the formulation of policy in this and indeed other areas of the law involves the resolution of two objectives, each intrinsically desirable, but perhaps mutually inconsistent. The first is that the law should be certain and predictable in its results. This objective is not only consistent with the popular concept of justice; it also means that it is easier for lawyers to advise their clients on the likely outcome of a dispute, so promoting the conclusion of reasonable settlements and minimising recourse to contested trials. The second objective is that the law should achieve justice and fairness between the parties; and it is said that this necessarily involves considerable flexibility of approach by reason of the widely varying facts of each case."

In para 35 the Law Commission, who were no doubt well aware of what the Scottish Law Commission were proposing, acknowledged that it was clearly desirable that the laws between these two parts of the United Kingdom should be based on the same principles. But they went on to say that they did not think that it necessarily followed that the English and Scottish laws governing the financial consequences of divorce should be couched in identical terms.

    105.  The approach which was favoured by the Law Commission was loosely structured. They attached greater importance to flexibility than they did to certainty. In para 21 they said that they favoured a reasonable balance between these two objectives. In the summary of their recommendations in para 46 of the report they said that any future legislation dealing with the financial consequences of divorce should be subject to continuous monitoring and periodical reports to Parliament. Their recommendation as to how the guidelines in section 25(1) of the Matrimonial Causes Act 1973 should be revised avoided an approach that was too prescriptive. They said that the importance of each party doing everything possible to become self-sufficient should be formulated in terms of a positive principle. They said that "weight" should be given to the view that, "in appropriate cases", periodical financial provision should be "primarily" concerned to secure a smooth transition from the status of marriage to the status of independence. They left the formulation of the legislation to give effect to this flexible approach to Parliament.

    106.  The approach which was favoured by the Scottish Law Commission, on the other hand, was the reverse of that which was recommended for England and Wales. It was the product of extensive research and consultation. It was worked out in very much greater detail. It produced a result which favoured certainty in place of flexibility. The report contained a draft Bill, complete with explanatory notes, which was designed to implement its recommendations. It was presented as a fully worked out system. There was no recommendation that the legislation that was proposed should be subject to monitoring or to review. It was intended to establish the law not just for a generation. Like the Forth Bridge, it was built to last for a very long time.

    107.  It has to be acknowledged that the law relating to financial provision on divorce in Scotland was without any clearly laid down structure or objectives when the Scottish Law Commission began to look at it in 1976. Section 5(2) of the Divorce (Scotland) Act 1976 enabled either party to apply for financial provision by way of a periodical sum or capital sum or both. The court was directed to make with respect to the application such order, if any, as it thought fit. The amount of any award, and the principles on which the award should be based, were left entirely to the court to determine. The court for its part refrained from laying down any clearly defined principles.

    108.  There was no obvious disadvantage in this system so long as exclusive jurisdiction in all proceedings for divorce remained in the Court of Session. This was a court where members of the Faculty of Advocates had the exclusive right of audience. The business was concentrated in the hands of a relatively small number of judges. The relatively small number of advocates who practised regularly in this field were able to predict the awards that were likely to be made by the judges in any given case without any real difficulty. But it was clear that that this system could not survive an extension of jurisdiction in divorce cases to the sheriff court, which the Royal Commission on Legal Services in Scotland had recommended in 1980. This reform was effected by section 1 of the Divorce Jurisdiction, Court Fees and Legal Aid (Scotland) Act 1983. The sheriff court now has concurrent jurisdiction with the Court of Session in actions for divorce. It is in the sheriff court that almost all divorce actions are now brought.

 
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