Yates v Yates  EWCA Civ 532
Appeal of a financial remedy order which had extended and capitalised spousal periodical payments.
By the first financial remedy order the wife's financial claims were disposed of except for periodical payments expressed to run for three years with no s.28(1)(a) bar.
The wife received a lump sum of £978,000 designed partly to enable her to discharge the mortgage in the sum of £451,000 on the matrimonial home. Instead, she remortgaged in the sum of c£100,000 and invested the advance in the purchase of a non-income bearing bond.
The wife applied to extend the term seeking a capitalised sum of £1.3m. The husband argued that it was meant to be a three-year term and if it were to be extended and quantified in capital terms the case advanced by the wife was plainly excessive.
At first instance, the District Judge set the wife's monthly budget at £4,000 resulting in an annual need of £48,000. He deducted £10,000 to reflect her earning capacity. The net figure of £38,000 he then quantified on a straight line 12-year calculation to produce approximately £450,000.
The wife appealed to the Circuit Judge challenging the extension of 3 years to 15 years.
The extension made by the District Judge rested on facts that he had found as to the understanding of the parties at the date of the negotiation in 2006. The findings were not interfered with.
The straight line 12-year multiplier was also challenged by the wife. The Circuit Judge properly substituted a Duxbury calculation which reduced the payer's liability substantially.
Furthermore the wife asserted that the District Judge had wrongly taken account of the continuing mortgage repayments at the rate of £500 pcm and finally asserted that the judge had included within the quantification of the wife's needs at £480,000 a year substantial expenditure in respect of the children - impermissible because there were child periodical payments and accordingly the net result was double counting. The wife failed before the Circuit Judge on these two points.
The wife appealed to the Court of Appeal. In respect of the first point, it was held that if a recipient of a lump sum twice the size of the mortgage on the matrimonial home elects to hold back capital made available for the mortgage discharge in order to invest in a bond that bears no income, she cannot look to the payer thereafter for indemnity or contribution to the continuing mortgage interest payments. The circuit judge had assumed that the refinanced mortgage resulted in an income-bearing investment but this was not the case.
In respect of the second point, it was held the District Judge was making an assessment of the wife's needs qua ("in the capacity of") wife and had not included any element of child expenditure in his assessment of the wife's needs. The appeal on the second point failed.
Appeal allowed on the first point. The capital sum payment by the husband for the termination of periodical payments to wife was reduced by £58,000.
Summary by Alfred Procter, barrister, 1 Garden Court
Case No: B6/2011/2733
Neutral Citation Number:  EWCA Civ 532
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM BOURNEMOUTH COUNTY COURT
(HIS HONOUR JUDGE MESTON QC)
Royal Courts of Justice
Strand, London, WC2A 2LL
Date: Wednesday, 28 March 2012
LORD JUSTICE THORPE
LORD JUSTICE ETHERTON
LORD JUSTICE LEWISON
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JAMES RICHARD YATES
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(DAR Transcript of
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Mr Robert Peel QC and Mr Nicholas Chapman (instructed by Ellis Jones) appeared on behalf of the Appellant.
Mr Jonathan Swift (instructed by Williams Thompson) appeared on behalf of the Respondent.
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(As Approved by the Court)
Lord Justice Thorpe:
1. This appeal raises two short points on the capitalisation of a previously made periodical payments order. It is common ground that the paper approach is fully considered in the cases of Fleming v Fleming  EWCA Civ 1841 and Pearce v Pearce  2 FLR 1144. However, the appellant asserts that the judges in the court below fell into error in the application of those principles.
2. The first order was an order made by consent in 2006 which disposed of all financial claims that the wife had brought against the husband except for continuing periodical payments which were expressed to run for a three-year term. There was no bar on further application under s.28(1)(a) of the Matrimonial Causes Act 1973.
3. The wife received substantial capital. The lump sum was £978,000, which was designed partly to enable her to discharge the mortgage in the sum of £451,000 on the final matrimonial home. In the event, and acting on the advice of a financial adviser, she preferred to remortgage in the sum of approximately £100,000 and invest that advance in the purchase of a bond which was not income bearing.
4. The application for the extension of the three-year term was reasonably predictable, but it drew from the respondent equally foreseeable objections. He obviously submitted that the three-year term was meant to be just such and that, in any event, if it were to be extended and quantified in capital terms, the case advanced by the wife was plainly excessive.
5. In the event, the wife having sought a capitalised lump sum in the region of £1.3m to buy off her right to continuing periodical payments for herself, the District Judge fixed on a sum of £456,000, which was a calculation arrived at by these stages. First, he set her monthly budget at £4,000 resulting in an annual need of £48,000. He deducted £10,000 to reflect her earning capacity. The net figure of £38,000 he then quantified on a straight line 12-year calculation to produce approximately £450,000.
6. I should interpolate that the proceedings are in the Bournemouth County Court and the District Judge was District Judge Weintroub.
7. The appeal came before His Honour Judge Meston QC and it is from his judgment that this appeal proceeds, with permission granted by Sir Mark Potter at the end of last year.
8. In front of the circuit judge, Mr Peel QC for the husband challenged the District Judge's extension of three years to 15 years, challenged his straight line 12-year multiplier, asserted that he had wrongly taken account of the continuing mortgage repayments at the rate of £500 a month and, finally, asserted that the judge had included within the quantification of the wife's needs at £48,000 a year substantial expenditure in respect of the children. That was impermissible, because there were continuing periodical payments orders for the children and, accordingly, the net result was double counting against the payer's interests.
9. It must be said that it is highly unusual for a three-year term order to be so liberally extended on the subsequent application to the court. Of course, it is a matter of discretion, but it is the authority of Fleming v Fleming which cautions against such extensions unless exceptional circumstances have been established. However, that is an aspect of the appeal to the circuit judge with which we are not concerned, for the extension made by the District Judge rested on facts that he had found as to the understanding of the parties at the date of the negotiation in 2006. Accordingly, it was not for either Judge Meston or for this court to interfere with those findings.
10. Mr Peel's second attack on the straight-line calculation was plainly entitled to succeed, indeed bound to succeed as it did before Judge Meston, who properly substituted a Duxbury calculation which reduced the payer's liability substantially.
11. However, he failed on his third and fourth points and it is, accordingly, those two residual points that he revives in this court.
12. I say at once that he is, in my judgment, plainly entitled to succeed on the first point. It seems to me little more than common sense that if a recipient of a lump sum twice the size of the mortgage on the final matrimonial home elects to hold back capital made available for the mortgage discharge in order to invest in a bond that bears no income, she cannot look to the payer thereafter for indemnity or contribution to the continuing mortgage interest payments. That seems to me to be an absolutely self-evident point. It is questionable to what extent the point was taken before the District Judge, but it was certainly plainly taken by Mr Peel before the circuit judge.
13. Perhaps from this fundamental point attention was distracted by the fact that the wife was intending to sell the final matrimonial home and to purchase in its stead a flat, a transaction which would have the effect of eliminating the mortgage.
14. But the essential search to establish the development of the order in the District Judge's court starts with a passage in the evidence of the wife, which has fortunately been transcribed. Mr Swift, who appeared for her below and who represents her today, asked her this critical question:
"Q. Are you able to give the court a view as to what you think, bearing in mind what your wishes are about any rehousing, what you think your monthly expenditure for yourself is likely to be?
A. Probably in the region of £4,000.
Q. Does that contain an element of repaying mortgage or not?
Q. Are you able to say what sort of figure you have in mind?
A. That's paying £500 a month."
And then on the next page omitting a number of questions, we see:
"Q. So for how long would the £4,000 a month be necessary when it has an element of mortgage in it?
A. Until the mortgage was cleared.
Q. Any idea when that is. Might it be cleared by a sale to an apartment or the alternative is for how long? It is an interest-only mortgage?
A. Yes, I don't know."
So then I go to the judgment of the District Judge and in paragraph 38 there is this sentence:
"38. [The wife] conceded that in fact she felt she could manage on £4,000 a month including her mortgage of £500 per month to pay on the former matrimonial home until sale."
Accordingly, it is perfectly plain to me that the District Judge, in accepting her evidence as to her needs, dutifully followed her evidence to the effect that her own assessment at £4,000 a month was inclusive of a figure of £500 a month in order to discharge the mortgage interest due.
15. Mr Peel failed in front of His Honour Judge Meston on this point and we see Judge Meston dealing with it between paragraphs 61 and 63 of his judgment. In paragraph 61, he said:
"61. In this case the wife took over the mortgage liabilities under the provisions of the 2006 order, and she thereafter did substantially reduce her mortgage liabilities using the lump sum payment she received under the 2006 order; but she did not wholly remove the mortgage liability on her home, hence the continuing requirement to pay £500 per month. [I then omit a speculation on the part of the judge as to her motivation and continue.] Obviously, had she used more of the lump sum to clear her mortgage debt altogether, she would have had less to invest for income. It is also quite possible she will in time re house herself free of mortgage."
In the following paragraphs the judge said:
"62...although the District Judge did not expressly disallow her mortgage payments as part of her budget he did reduce her budget to £4,000 a month. It is also submitted that the point was not specifically argued before the District Judge.
63. Whether or not it was argued, or argued as fully as it has been on appeal, in the circumstances of this case I am not persuaded the District Judge was wrong not to have specifically excluded the amount of the mortgage payments in his assessment of the wife's budgetary requirements."
16. Now, in my judgment, the passages cited are unsustainable. It seems as if Judge Meston assumed that the refinanced mortgage resulted in an income-bearing investment, but that was not this case. Accordingly, it seems to me that he was incorrect to uphold the District Judge in not specifically excluding the amount of the mortgage payments in his assessment of the wife's budgetary requirements.
17. Accordingly, despite Mr Swift's valiant efforts to support the judges below, I am in no doubt that there was an error of principle in the calculation of the cost of capitalisation. It seems to me, on the evidence, that the inescapable conclusion was that the wife's true needs for herself were running at the rate of £3,500 a month, excluding any obligation to make mortgage interest repayment.
18. Mr Peel has valiantly endeavoured to succeed also on the second point, namely that the judges fell into error in allowing the wife to include, within her needs, needs that were truly child-centred and which were the subject of continuing periodical payments orders. My simple response to that is that it is clear from the passages already cited that the District Judge was making an assessment of the needs of the wife qua wife. The point was not one that had passed, as it were, under his radar. There were extensive arguments about it and before Judge Meston, but Mr Peel has sensibly conceded that if this court takes the view that the District Judge had not included any element of child expenditure in his assessment of the wife's needs at £4,000 per year, then his appeal on the second point must fail.
19. So for all those reasons, I would allow this appeal and reduce the capital sum payable by the husband for the termination of periodical payments order to the wife by the sum of £58,000.
Lord Justice Etherton:
20. I agree.
Lord Justice Lewison:
1. The wife's evidence in this case was clear. Her needs were £4,000 per month inclusive of £500 per month mortgage interest repayment. As Thorpe LJ has explained, the need to pay the mortgage at all arose from her own choice not to apply the whole of the lump sum in discharging the existing mortgage and investing part of it instead in the non-income-producing AXA bond. The financial consequences of her investment choice are her responsibility. It is wrong in principle for the husband to have to continue to fund the mortgage. It is clear, on the evidence, that the District Judge's starting point was the £4,000 inclusive of £500 mortgage interest. In that respect the judge fell into error.
2. So far as the second point is concerned, it is I think clear from the wife's evidence in re-examination that the £4,000 was her assessment of her own income need, which did not include any part of the children's need. The judge reduced her proposed budget, which did include payments for the children, from £5,250 down to £4,000. I too would reduce it further by the sum of £500 and carry forward the balance of £3,500 to the calculation of net sum to be capitalised in accordance with Duxbury principles.
Order: Appeal allowed