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Insults and Injuries; the court’s approach to personal injury damages in financial remedy proceedings

Pranjal Shrotri barrister, 36 Bedford Row, considers how personal injury claim awards are likely to be treated by the court in distribution of assets between divorcing parties












Pranjal Shrotri, barrister, 36 Bedford Row

The damages awarded for personal injury claims can be substantial. Whilst not a routine feature of financial remedy cases, when they do crop up they can  form a significant portion of the parties' assets. An understanding of the court's treatment of such damages is therefore a valuable part of any finance practitioner's toolkit.

Case law
The issue is not one blessed by a plethora of case law. However, the broad principles are outlined in the leading case of Wagstaff v Wagstaff [1992] 1 WLR 320.

Wagstaff concerned an eight-year marriage. There were no children of the marriage, although the wife had two children from a previous marriage. Six years in, the husband suffered an accident rendering him paraplegic and he was awarded damages of £418,000 consequent to his injuries. The husband used these funds to purchase a specially adapted home and to start up a business, with the balance being invested in order to provide him with an income. The only other major asset in the case was the former matrimonial home.

The trial judge permitted the wife to retain the former matrimonial home and also awarded her a lump sum payment of £32,000. At the time of the husband's appeal the wife had sold the former matrimonial home and reinvested most of her capital in a property purchased with a work colleague.
The Court of Appeal confirmed that personal injury damages were an asset available for the court's consideration when it conducted the section 25 exercise;

''the capital sum awarded is not sacrosanct nor any part of it secured against the application of the other spouse…the reality of course is that the compensation is a financial asset which….has to be taken into account when the court comes to exercise its powers in accordance with section 25 of the Matrimonial Causes Act 1973'.  1

Notwithstanding this, the source of the assets was an important factor in determining how the court exercised its discretion;

'In general, the reasons for the availability of the capital by way of damages must temper the extent of, and in some instances may exclude the sharing of, such capital with the other spouse. It is important to stress yet again that each case must be considered on its own facts. …Consequently, the circumstances in which the capital came into the hands of the husband are highly relevant to the exercise of discretion carried out by the deputy registrar and the judge, but do not fetter that discretion'. 2

The court was concerned with the amount actually available to the parties at the time of the hearing, although it was accepted that the quantum of the original award and past utilization of its funds were relevant;

'It is…unrealistic to use as the starting point for any calculations sums available to the parties at some earlier period but no longer available at the time of the hearing. The former existence of such sums will be relevant to the circumstances of the case and may be highly pertinent to criticisms of a party's feckless or fraudulent behaviour, and may throw light on the just result of the division of the capital which remains.' 3

In the present case, although the wife's immediate housing needs were met without recourse to the husband's damages, she lacked the financial capital to buy out the co-owner of her property. Accordingly, it was noted that without the £32,000 lump sum, she 'lack[ed] complete security since her existing capital would be inadequate to house herself suitably if the present arrangement broke down'4 The court thus held that the trial judge had been correct to award the wife the lump sum in addition to the former matrimonial home.

Of course, the decision in Wagstaff  predates the sweeping changes brought about by Miller and McFarlane.

M v M [2011] EWCA Civ 1056 confirms the family courts' approach to personal injury damages in the post-Miller landscape. In effect, the court applied the same principles as those expressed in Wagstaff, but interpreted the parties' needs more generously as befits a post-Miller case.

In M v M the husband and wife had been married for about 6 years. They had 4-year old twins of whom the wife was the primary carer. The husband had received damages of approximately £500,000 in settlement of a personal injury claim which had been resolved before he met the wife. He used part of this sum to buy a property, named 'TO', which was suitable to accommodate a person with his disabilities. He also purchased an investment property that provided him with a rental income. The wife had paid about £30,000 towards TO.

At first instance the husband had been ordered to pay the wife a lump sum of £285,000, to add to her mortgage potential of £42,000. This left the husband with property and savings of about £320,000.

The Court of Appeal did not interfere with the generous capital sum which the trial judge had awarded the wife, accepting that this was the minimum required to meet the needs of the wife and children.  It did, however, order a charge back in favour of the husband in the form of a Mesher order. This was justified by 'the need to give special reflection to the origin of the family capital and the special purposes for which it was provided'. 5 Whilst such an order was also recognised to neatly meet the parties' changing needs as the children grew and the husband aged, the court was clear that it was 'the exceptional factor in this case, namely the origin of the family capital or the vast majority of the family capital' which made the case 'particularly suitable for the application of a Mesher order'.  6

Analysis
The court's approach to personal injury damages in financial remedy proceedings is very similar to its approach to non-matrimonial property in general. As with non-matrimonial property, personal injury damages will not be ring-fenced and the courts will have recourse to them as necessary to meet the parties' needs.

Needs, however, will not be the court's only focus. In M v M the court appeared at pains to stress that whilst a Mesher order fitted with the parties' needs, the rationale for its imposition was to reflect the fact that the majority of the family capital had come from the husband's damages. It thus seems that even in a case constrained by needs, the court will make a real attempt to depart from equality in respect of a personal injury award made to just one of the parties. It is likely that in cases that are not needs based, the extent of the departure from equality will depend on the usual considerations relevant to non-matrimonial property, such as the length of the marriage and the degree of mingling with other assets.

How the court will give effect to this departure from equality, and specifically whether it does so using the two-stage approach applied in Jones v Jones  7 or the discretionary percentage approach in Robson v Robson 8, will depend on judicial preference and the particular facts of the case. Clearly, the size of the total assets available relative to the parties' needs is relevant. In M v M, because of the limited nature of the assets, only the discretionary percentage approach would permit the parties' needs to be met.

If there is no mingling, the damages are in a form that can be easily valued, and there are no arguments that the non-injured spouse has any entitlement to the damages, this will speak in favour of the two-stage approach.

Notwithstanding that the court's approach to personal injury damages parallels its treatment of non-matrimonial property in general, there are certain considerations that will be unique to personal injury damages alone.

There is a very limited obiter exception, articulated in Wagstaff, to the principle that personal injury damages will not be ring-fenced. Giving judgment for the court in that case, Butler-Sloss LJ expressed the view that 'there may be instances where the sum [of damages] awarded was small and was specifically for pain and suffering in which case it would be unsuitable to order any of it to be paid to the other spouse'9 Notwithstanding that Wagstaff is a pre-Miller case, it seems feasible that reliance on such an argument may be successful when the size of the award relative to the parties' overall assets is such that ring-fencing the award would not make any real dent in the sum required to meet the parties' needs.

The non-injured spouse may want to argue, quite separately of the issue of the parties' needs, that elements of the injured spouse's award ought properly to be shared between the parties.  For example, part of the injured spouse's award may have been for loss of future earnings. It is easy to imagine circumstances where the non-injured spouse would, in the absence of any injury having occurred, have a strong claim to at least some of the other spouse's earnings on principles of compensation and sharing. Arguably, the non-injured spouse should thus also have a claim to this element of the injured spouse's award. At the very least, such an argument may be a reason for the court to adopt the discretionary percentage approach in dividing the parties' assets.

How likely the court is to accept arguments focusing on the specific elements of the damages award is not clear, not least because of the lack of case law on the subject in general. On the one hand, the court's comments in Wagstaff regarding awards for pain and suffering suggest that the court may be willing to look at the purpose for which an award has been made in deciding how it should be distributed. On the other, whilst certain elements of the injured party's award will directly reflect his or her needs – the most obvious being future care needs – the courts have to date not made any reference to these when deciding the parties' needs for the purpose of financial remedy proceedings. It may be that arguments relating to the purpose of various elements of personal injury awards are seen to be at odds with the broad-brush section 25 exercise.

Conclusion
Personal injury damages are treated in a very similar way to non-matrimonial property in general. The court will have recourse to the damages when this is required to meet the parties' needs, but will also make efforts to ensure that where possible, the source of the property is reflected in an appropriate departure from equality. How this departure is achieved will depend on the facts of the case. Arguments can be made that different elements of the damages should be treated differently, according to the purpose for which they were initially awarded. It is unclear, however, whether arguments of this nature would be welcomed by the courts.

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1 Wagstaff v Wagstaff [1992] 1 WLR 320, at 325

2  As above

Wagstaff v Wagstaff, at 323-324

Wagstaff v Wagstaff [1992] 1 WLR 320, at 325
5 M v M [2011] EWCA Civ 1056 at para 22
6 as above at para 23
7 [2011] EWCA Civ 41

8 [2010] EWCA Civ 1171
9 Wagstaff v Wagstaff [1992] 1 WLR 320, at 325