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Justice of compensation claim ‘stares court in the face’

Husband ordered to pay £400K to terminate periodical payments order

In H v H [2014] EWHC 760 (Fam) a husband sought to vary/terminate the joint lives periodical payments order of £150,000 pa made in favour of his former wife in 2006 (the 2006 application being to vary the order that the parties had initially settled upon their divorce in 2005).  In Coleridge J's view, the wife's 2006 application was made in light of the decision in Miller v Miller; McFarlane v McFarlane [2006] UKHL 24 when the concept of compensation was given weight.

The husband's application heard before Coleridge J in 2014 was issued in 2012.  The basis for the husband's application was that he intended to retire in 2015 at the age of 56 and sought to terminate the present order upon his retirement.  The wife resisted the husband's application until mid-way through the trial when she agreed that the court should consider the long term position and sought £2.6m upon the husband's retirement in 2015 or later if he did not retire by that date.  The husband's second wife has terminal cancer and is not expected to survive beyond two years.  The husband wanted to put himself into the position that he could plan accordingly for the future and in particular, be able to care for his and his second wife's two young children.

The wife presented her case on the basis that she had made a considerable sacrifice by giving up work and this had allowed the husband to generate very significant assets.  Coleridge J held, and emphasised that, this case was one in which on the particular circumstances within the case, compensation should be recognised.  The Judge underlined that there could be no hard and fast rule as to weight to be given to compensation but it was right to do so in this case to recognise properly that the wife had more than just an entitlement arising from the marriage.

The Judge noted that the wife had been able to add considerably to her savings because of the size of the existing periodical payments order and accepted the husband's case that the wife's budget was £70,000 p.a. but added an additional £10,000 p.a. to be generous towards her.

The husband contended that the wife should now be expected to move house to release capital which should form the basis of income producing capital on a fully amortised Duxbury basis.   Coleridge J held that generally speaking, such a submission is a reasonable one but in the present case did not adopt it as fully as he might otherwise do. His Lordship explained that the reason for this was because of the "compensation" element in the case.  The Judge held that he would ensure the compensation element was properly recognised in four ways.  First, the Judge attributed only £500,000 of the equity in the wife's home as a part of her long term income fund, and only ascribe to it a reasonable annual return of 3.75% net p.a.  He did not assume the wife should have recourse to the actual capital in the way that a Duxbury calculation would do.     Second, by the same logic, he took the whole of the £1m which the wife had saved as being available to her but also on the same annual basis of 3.75% and not on a fully amortised capital basis.   3.75% net, in his judgment, was a medium level return over a long period without necessarily factoring inflation into the calculation.  Third, the Judge did not factor in any step down at a later date.  And fourth, he ignored in the calculation any extra savings which the wife may make between now and when the husband actually retires.  Therefore, if the wife were able to save another £100,000 or thereabouts, then that would be a bonus to her. Additionally, the judge had already increased her budget figure.

In overall terms, the wife therefore had (or could have) £1.5m of her own resources to provide an unearned income which on the basis of a strict 3.75% p.a. net would be £56,250 and rounded it down to £55,000.

To achieve the £80,000 p.a. budget, the wife was therefore short of £25,000 per annum.  The Judge noted that a simple Duxbury calculation was required to make up the gap arriving at a sum of £400,000 being required to provide to the wife with the £25,000 p.a. for the remainder of her predicted life expectancy.

Coleridge J remarked that he agreed with the recent pronouncements about the dangers inherent in attributing special weight to arguments about compensation.  However, the Judge noted that there remain a very small number of cases where it stares the court in the face and to ignore it and simply approach the case on the basis of the more simplistic "needs" arguments does not do full justice to a wife who has sacrificed the added security of generating her own substantial earning capacity, as the wife in this case, he held, undoubtedly did.  While Coleridge J doubted that the wife was worse off financially (as her investment in the family had enabled the husband to generate enormous returns which she participated in) he noted that the building up of a secure earning capacity over a working life is a greater security to an individual spouse rather than merely being dependent on the future income generating resources of a former partner, however successful they were.

Philip Marshall QC and Harry Oliver of 1 King's Bench Walk (instructed by Payne Hicks Beach) represented the applicant. Patrick Chamberlayne QC of 29 Bedford Row (instructed by Stewarts Law) represented the respondent.

For the judgment and summary by Richard Tambling of 1 Garden Court, from which this item is derived, please click here.