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Cite as: [2010] Fam Law 793, [2011] Fam 46, [2010] 2 FCR 509, [2010] 3 WLR 1209, [2010] 2 FLR 242, [2011] 1 Fam 46, [2010] EWCA Civ 349

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		Neutral Citation Number: [2010] EWCA Civ 349
		Case No: B4/2009/2533

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE, FAMILY DIVISION, PRINCIPAL REGISTRY
MR RICHARD ANELAY QC, sitting as a deputy judge of the High Court
Lower Court No: FD84D09776

Royal Courts of Justice
Strand, London, WC2A 2LL

31/03/2010

B e f o r e :

LORD JUSTICE WILSON
LORD JUSTICE HUGHES
and
LORD JUSTICE PATTEN
____________________

Between:

	PHILIPPA MARY VAUGHAN	Appellant
	- and -
	DAVID ARTHUR JOHN VAUGHAN	Respondent

____________________

(Transcript of the Handed Down Judgment of
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____________________

Mr Christopher Wagstaffe (instructed by Hodge Jones & Allen LLP, London NW1) appeared for the Appellant.
Mr Nicholas Mostyn QC and Mr Timothy Bishop (instructed by Withers LLP, London EC4) appeared for the Respondent.
Hearing date: 4 March 2010
____________________

HTML VERSION OF JUDGMENT
____________________

Lord Justice Wilson:

A: INTRODUCTION

For convenience I will describe the Appellant as the wife and the Respondent as the husband notwithstanding that they were divorced as long ago as 1985.

The wife appeals against orders made by Mr Richard Anelay QC sitting as a deputy judge of the High Court, Family Division, on 3 November 2009. Ever since their separation in 1981 the husband had been making periodical payments to the wife; and, for the twenty years between 1989 and the date of the judge's order, he had been making them at the rate of £27,175 p.a. As it happens, they had then been payable as to £12,000 p.a. under a Deed of Separation ("the deed"), as varied, and as to £15,175 p.a. under an order for periodical payments. Before the deputy judge (hereafter "the judge") was an application by the husband to terminate both parts of his obligation to make periodical payments to the wife. Also before him, however, was a cross-application by the wife for an order that its termination should be in consideration of his payment to her of a substantial lump sum by way of capitalisation, under s.31(7B) of the Matrimonial Causes Act 1973 ("the Act"), of what she contended would otherwise be his obligation to continue to make periodical payments to her. She contended that the lump sum should be in the sum of £560,000. By way of reply the husband conceded that, were he to be held to be under any obligation to continue to make periodical payments to her, his obligation should indeed be capitalised; but he contended, as before, that in the circumstances he was under no such obligation.

The judge acceded to the husband's application. Thus, in relation to the deed, the judge revoked the financial arrangements contained in it pursuant to s.35(2)(i) of the Act; and, in relation to the order for periodical payments, he expressed himself satisfied, pursuant to s.31(7)(a) of the Act, that the wife could adjust without undue hardship to the immediate termination of the payments and so he discharged the order under s.31(1) of the Act. In that he held that the husband was under no obligation to continue to make periodical payments to the wife, it followed that the judge dismissed the wife's cross-application for an order for the payment of a lump sum by the husband to her by way of capitalisation thereof.

Against these orders the wife appeals. By Mr Wagstaffe, who did not appear for her in the court below, she contends that the judge's determination was vitiated by legal error; that we should therefore determine the applications in his stead; and that we should order the husband to make to the wife a lump sum payment not of £560,000, but of £342,000, by way of capitalisation of his obligation, whether under the deed and/or under an order of the court, to continue to make periodical payments to her.

In particular the appeal raises a question about the proper treatment of the hypothetical claims of a second wife against the husband in the assessment of any obligation on his part to continue to make periodical payments to a first wife. It also touches, tangentially, upon whether, in the assessment under s.31 of the Act of the amount of the contribution which a wife can herself make to her own future support, it is appropriate to amortise capital held by her otherwise than as a result of transfer by a husband, namely in this case to amortise capital inherited by her.

B: THE BACKGROUND

The wife is aged 66. She has not remarried. She lives alone in a four bedroom house in Hammersmith which is in her sole name, free of mortgage and worth £1,091,000 net of costs of sale. She is a renowned expert on Islamic and Indian art but she now has no earned income. Her health appears good and she claims genetic longevity.

The husband is aged 71. He has remarried. He married the second wife (as I will describe her) in 1985. She is aged 56. They live together in a large house in North Kensington which is in their joint names and is worth £4,365,000 net of costs of sale. But it is subject to a mortgage of £737,000. They have two children, namely a son aged 22 and a daughter aged 19, both now at university. The husband still heavily subsidises the children; but the subsidy will not endure in the long term and, in the case of the son, should end after about two years.

The husband has been in practice as a barrister since the age of 24 and he took silk in 1981. He is a distinguished member of the bar and one of the leading exponents of E.U. law in England and Wales. It was with difficulty that this court was able to identify three of its members who were acquainted with him only so slightly that they could properly hear this appeal.

Unfortunately, however, the husband's health has been in serious decline during the last three years. For the time being he continues to do limited work at the bar; but the wife accepts that it is inappropriate to ascribe to him any future earning capacity for the purpose of these applications.

The husband and the wife were married in 1967 and they separated in 1981: so the marriage lasted for more than 13 years. There was no child of the marriage. At the time of the separation the husband was aged 42 and the wife was aged 37. In 1975 she had begun to work full-time at Christie's in her specialist field but from 1979 to 1981 she was working there only as a part-time consultant.

The deed was executed in September 1981, at the time of the separation. It provided that, out of the proceeds of sale of the parties' home, the wife should receive £105,000 together with chattels, including an already valuable Indian desk which the parties had bought together; and that the husband should make periodical payments to her at the rate of £12,000 p.a. for two years and, thereafter, at a rate which would bring her income up to one third of their joint incomes.

In 1984 the wife petitioned for divorce; and in August 1985 the decree absolute was pronounced which enabled the husband to marry the second wife. At that time the wife did not activate her claims for ancillary relief. Instead there was a consensual variation of the deed, whereby the wife's periodical payments reverted to the fixed rate of £12,000 per annum and, perhaps as a quid pro quo for her relinquishment of the right to have her income brought up to one third of their joint incomes, the husband paid her a further capital sum of £40,000.

In 1989 the wife for the first time applied to the court for financial provision. In form it was an application under s.35 of the Act for an order for upwards variation of the provision in the deed, as already varied, for periodical payments at the rate of £12,000 per annum; but the wife seems to have been treated as having also activated the claims for ancillary relief made in her petition.

We have the benefit of a written judgment on the wife's applications delivered by Booth J on 20 December 1991. The wife accepted that, in the light of the payments of capital made to her in 1981 and 1985, there was no case for the husband to make further capital provision for her; and her capital claims were duly dismissed. In response to her application for increased periodical payments, the husband seems to have proposed a package of provision amounting nearly, albeit not entirely, to a clean break following two further years of substantially increased support for her. But Booth J rejected his proposal. The evidence was that since 1981 the wife had continued to work part-time for Christie's; that her expectation at the time of the variation in 1985 that she would obtain a senior full-time position there had not been fulfilled; and that in 1989 Christie's had even terminated her part-time employment. By the time of the hearing in 1991 she was aged 48 and Booth J found that she had an annual earning capacity of only £5000. By contrast the husband's gross annual income for tax purposes was by then already at least £243,000. Booth J held that the husband should be required to make periodical payments to the wife on a "long-term" basis: she thereby meant only an "indefinite" basis and the wife does not suggest that the terms of the judgment of Booth J by themselves precluded the judge from making the orders under appeal. Booth J also observed, however, that the history of the case did not warrant an award in excess of the wife's needs, albeit reasonably to be estimated. Booth J's order was that, because it was then tax-efficient for him to keep the provisions of the deed in place, the husband should continue to make periodical payments to the wife of £12,000 p.a. thereunder but that additionally he should make periodical payments to her under an order therefor at the rate of £15,175 p.a., backdated to 1989.

Thus it is that, from 1989 until the date of the judge's order, the husband made periodical payments to the wife in the total sum of £27,175 p.a. In April 2000 the husband lost tax relief on the payments under the deed and, correspondingly, no part of the total of £27,175 p.a. was thereafter subject to income tax in the hands of the wife.

C: THE WIFE'S FINANCIAL CIRCUMSTANCES

Mr Mostyn QC on behalf of the husband argued before the judge, albeit not strenuously, that it was unreasonable for the wife to continue to reside alone in her four-bedroom home worth £1,019,000 and that she should sell it, should buy an alternative home for say £719,000 and should thus release £300,000 for application towards her maintenance needs. But the judge declined to accept that it was unreasonable for the wife to continue to reside in her home and thus that she should sell it. He noted only that she could sell it; that in due course she probably would sell it; and that she might then be able to release, for the service of her maintenance needs, a sum of the size suggested by Mr Mostyn. The judge made clear that his order was not predicated on any such sale and release.

There is no doubt that the wife's home is in poor repair. Her case was that she needed to effect substantial repairs (including redecorations) and to extend the kitchen. We can ignore the extension because the judge found that it was unnecessary and his finding is not challenged. But he found that substantial repairs were necessary. He then had to estimate their reasonable cost. In this regard, however, the wife was extremely foolish. Having herself obtained estimates of the cost of repairs amounting to £82,000, she declined to give access for estimates to be made on behalf of the husband. When we pointed out to Mr Mostyn that he could have obtained a district judge's direction for the wife to give access, he said that it had been considered more beneficial to the husband that the wife's evidence of cost should be left in this unsatisfactory state. The tactical decision was typically shrewd; but it would have been preferable for the judge to have been able to reach a firm finding about cost. He certainly did not reject the wife's figure of £82,000 as being, for example, incompatible with the comments of the valuers about the state of the property. But of course he had to place a question-mark against her figure; and in that respect she had no one to blame but herself.

The Indian desk transferred to the wife under the deed has become extremely valuable. The wife does not challenge the judge's finding that it has a net value of £300,000 although she stresses the intrinsic uncertainty surrounding valuation of any such artefact. Before the judge her former counsel made an important, and in my view a realistic, concession; and before us Mr Wagstaffe has quickly abandoned his attempt in part to draw back from it. The concession was not only that it was reasonable for the wife to sell the desk but also that, in her hands, its net proceeds (viz. of £300,000, as found by the judge) should be amortised, i.e. that, for the purpose of assessing her ability to contribute towards her maintenance requirements, she should be expected not only to apply the income likely to be generated by their investment but also to spend the proceeds themselves over the course of her statistical life such that, at its end, none of them should remain. No doubt what prompted the concession was that the desk had been bought during the marriage; that it had probably been funded out of the husband's income, albeit surely identified for purchase as a result of the wife's expert eye; and that it was now so valuable that it should be treated no longer as but one component of a conventional division of chattels but, rather, as an article of value ceded by the husband to the wife in 1981 as something analogous to a Duxbury fund for the meeting of her future needs, inherent in which is – of course – the principle of amortisation.

In 1988 the wife's father died and in 2005 her mother died. From each of them the wife received an inheritance. It is, submits Mr Mostyn, highly relevant to one of the issues in this appeal that prior to the hearing she had chosen to spend not just the income generated by her inheritance but a significant part of the inheritance itself, not least on her costs in relation to the proceedings, estimated at an arrestingly high figure of £200,000. The judge found that the wife's remaining liquid capital, net of liabilities, amounted to £380,000 and that in effect it represented the balance of her inheritance.

The wife is in receipt of a reduced State Retirement Pension, amounting to £3000 p.a. gross; and she has a modest private pension fund worth £31,000, which generates for her an income of £2000 p.a. gross. So her total pension income is £5000 p.a. gross.

The wife put before the judge an estimated annual budget of £62,000. Before him Mr Mostyn contended that 14 of her constituent figures were too high and that reasonable figures for those items gave rise to an annual budget of only £44,000. He must clearly have cross-examined her about it to considerable effect. For the judge upheld nine of Mr Mostyn's suggested reductions although, oddly, he failed to record, or (it seems) even to calculate, the resulting total, which was £50,000. Instead he proceeded, in his own words, to "accept Mr Mostyn QC's submission that a single woman aged 66 can live comfortably on £48,000 p.a. net for life". My impression is that some of the judge's reductions in the wife's budget were rather severe and, indeed, that it was arguably unfair to her that, without explanation, he should further reduce to £48,000 a budget which, on his premises, he should have calculated at £50,000. Mr Wagstaffe, who presents the wife's appeal in attractively measured terms, does not place a complaint about the judge's treatment of the wife's budget at the forefront of his case. He does, however, contend that, if, as a result of other flaws in the judge's determination of the applications, we were to decide to conduct the discretionary exercise for ourselves, we should look for ourselves at the reasonableness of the wife's annual budget and favour a total of £54,000. In the end, however, Mr Mostyn persuades me that, even if we were to decide to conduct the discretionary exercise for ourselves, we should adopt the judge's ultimate figure of £48,000 for the wife's annual budget. In the economical submissions made to us on both sides there has been no reference to the constituent figures in the wife's presentation of her budget. Following detailed cross-examination and submission, the judge, by contrast, was in a stronger position to appraise it. He was also entitled to do so broadly; and, with hesitation, I propose to put to one side my lack of enthusiasm for the manner in which he treated it.

D: THE HUSBAND'S FINANCIAL CIRCUMSTANCES

The husband agrees that the home of himself and of the second wife in North Kensington should be sold and that a smaller, cheaper home in London should be purchased in lieu. The judge estimated the excess liquid proceeds thereby likely to be generated by reference to two hypotheses, neither of which is in issue:

(a) first that the existing mortgage on the home, together with other liabilities of the husband, will, after netting off against them not only certain liquid assets belonging to him but also one quarter of the value of his pension fund which he is able to draw by way of a lump sum, require clearance by the application of £309,000 out of the proceeds of sale; and

(b) second that the smaller home will cost £2,250,000.

Upon these hypotheses the excess liquid proceeds were estimated at £1,806,000, namely £4,365,000 minus (£309,000 plus £2,250,000).

It will prove to be of crucial importance in this case to perceive how the judge notionally allocated assets and income to the second wife. The home in North Kensington is in the joint names of the husband and the second wife; and Mr Wagstaffe concedes that it was right for the judge to attribute one half of the excess liquid proceeds, namely £903,000, to her and only the other half to the husband. But we must bear the judge's attribution thereof to the second wife in mind when we consider how he later proceeded: so I will call it his first attribution.

There was evidence before the judge that the husband had given to the second wife a portfolio of shares, now worth £330,000. It is unclear, at any rate to us, when the gift was made. The husband's explanation was that the second wife had received an inheritance which she had passed to the children and that he wanted to reimburse her. The judge seems not to have acceded to the wife's contention that the value of the portfolio should be notionally reattributed to the husband; but, as we will see, he did attribute to him one half of its modest income, albeit that on any view that he erred in calculating it. There is no complaint before us about the judge's treatment of the portfolio. But, notwithstanding the relative modesty of its value and in particular, at current rates, of the income which it can generate, we must, again, bear in mind his attribution of half of the portfolio to the second wife: so I will call it his second attribution.

The husband has other assets, not brought into the netting-off calculation at [22(a)] above. Mr Wagstaffe complains that the judge wrongly failed to ascribe any income to them or even to explain why he refused to do so. The assets are:

(a) a cottage in Wales given to him when he was an undergraduate by his father, worth £175,000;

(b) an interest in a wood in Wales, worth £35,000;

(d) chattels which have been in his family for generations, worth £330,000; and

(e) fees owed to him in the sum of £53,000 net of tax.

I accept that many of the judge's marginal decisions seem to have gone in favour of the husband but, in the light of the origin and/or nature of the above assets, I am not persuaded that his refusal to ascribe any income to them was plainly wrong.

The value of the husband's private pension fund is £2,388,000 so, following deduction of the one quarter which is capable of being drawn as a lump sum and which has already been brought into the reckoning at [22(a)] above, its value is £1,791,000. In relation to his private pension, the husband proposes to make an important election: in the light of his poor health and the second wife's young age relative to his own, he proposes to exercise the right under his pension scheme to elect that an annuity be paid both to him during their joint lives and then, at the same rate, also to the survivor of them during her (or his) life. Such provision is likely to be of substantially greater benefit for the second wife than the conventional arrangement whereby, as the pensioner, he should receive an annuity at a certain rate and, were he to predecease her, she should receive an annuity at only half of that rate. It is, so the judge found, reasonable for the husband to make such an election. But it comes at a cost: for an annuity which is payable in full until the death of the survivor of the husband and of the second wife is 20% less than that which would be payable to the husband during his lifetime under the conventional arrangement to which I have referred. For the purpose of assessing his obligation to the (first) wife, the amount of the husband's income is thus, at a stroke, reduced as a result of his election to make such increased provision for the second wife: so I will call it the judge's third attribution. The judge found that the amount of the reduced annuity payable until the death of the survivor of the husband and the second wife was between £75,000 and £100,000 p.a. gross and, although Mr Mostyn argues that these figures are high, he does not actively challenge them and in any event no respondent's notice has been filed.

The husband is in receipt of a state retirement pension of £5000 p.a. gross.

E: THE JUDGE'S REASONING

The judge correctly recognised that the issue whether the husband should be ordered to pay a lump sum to the wife under s.31(7B) of the Act, by way of capitalisation of any obligation to continue to make periodical payments to her, fell to be resolved by application of the principles set out in the decision of this court in Pearce v. Pearce [2003] EWCA Civ 1054, [2003] 2 FLR 1144. It is a decision which has rightly received wide approbation, no doubt because, in the words of Thorpe LJ, at [39], it identifies "a relatively simple, certain and predictable method for the calculation of the capital sum". So the first enquiry is to identify the level of periodical payments which should in principle continue to be made by the payer to the payee (including, in the present case, whether they should continue to be made at all and thus whether the payee can – within the meaning of s.31(7)(a) – adjust without undue hardship to their termination): per Thorpe LJ, at [37]. If the result of the first enquiry is a conclusion that periodical payments at a specified level should in principle continue to be made, the second (ignoring, for this purpose, the need to identify what would be the appropriate date for the start of periodical payments at any changed level) is to calculate their capital equivalent according to the Duxbury formula: per Thorpe LJ, again at [37]. For the sake of completeness, I would add that the court must finally survey whether it is fair to both parties to capitalise the periodical payments and, no doubt in particular, whether it is reasonably practicable for the payer to pay the capital sum rather than to make the periodical payments. At all events the court has, thank goodness, only a narrow discretion to arrive at a capital sum otherwise than by application of Duxbury formula and it should exercise it in order only to reflect special factors: per Thorpe LJ, at [38].

With the case of Pearce in mind, the judge therefore asked himself whether the husband was in principle obliged to continue to make periodical payments to the wife. The judge had already determined one of the three aspects of that question, namely that the wife had a need to spend £48,000 p.a. The second was what the wife could reasonably contribute out of her existing resources to meeting her need. In that regard, at this stage curiously spurning her concession that she should amortise the proceeds of the desk and, again curiously, raising the cost of repairs to her home from her own questionable figure of £82,000 to £100,000, the judge calculated that she could contribute only £22,000 p.a. gross, i.e. £19,000 p.a. net; were one, however, to eliminate those two curiosities, the figure would have been about £32,000 p.a. net. At all events the third and final aspect was whether (and, if so, to what extent) the husband should, in the light of his financial circumstances including his obligations, reasonably contribute to what, on either calculation, was the very substantial shortfall; and of course the primary – but not necessarily the only – dimension of the third aspect was to appraise the husband's future annual income.

The judge appraised the husband's future annual income to be approximately as follows:

(a) income upon his half share of the excess liquid proceeds of the home estimated in all at £1,806,000, so £903,000, 3% gross, viz £17,000 net;

(b) income upon his half share of the portfolio valued in all at £330,000, so £165,000, 3% gross, viz (correcting the judge's error) £3000 net;

(c) a one half share of the private pension, amounting in all to between £75,000 and £100,000 gross, so between £38,000 and £50,000 gross or between £23,000 and £32,000 net; and

(d) his state retirement pension, namely £5000 gross or £3000 net.

Thus the judge calculated the husband's total annual income at between £46,000 and £53,000 net.

On the basis of the appraisal of the husband's income set out above the judge proceeded, first and no doubt correctly, to reject the wife's then contention that the husband was in principle obliged to continue to make periodical payments to her at the rate of £43,000 p.a. and, second and more questionably, to conclude that he was not in principle obliged to continue to make periodical payments to her at all. But we need not dwell upon the question-mark which I have set against his conclusion in that second respect. For the bigger question is whether his appraisal of the husband's income was appropriate at all. The answer turns on his treatment of the husband's private pension at [30(c)] above. For he ascribed to the husband only half of that pension. He ascribed the other half of it to the second wife: so I will call it his fourth attribution.

In his 80-paragraph written opening of the case for the use of the judge Mr Mostyn, while of course stressing the husband's obligation to maintain the second wife, had not even sought to argue that half of his pension should be removed from the calculation as being her separate entitlement. The argument can have been only an afterthought, presumably not even canvassed until final oral submissions.

The background to any proper consideration of the judge's fourth attribution to the second wife is, of course, his first three attributions: for, without dispute on the part of the (first) wife, the second wife had already rightly been recognised to be the owner of one half of the excess liquid proceeds of their existing home (as well as a joint and equal owner of their proposed new home), to be entitled to one half of the income from the portfolio transferred into her name by the husband, and to be the beneficiary of a proposed arrangement, costly in the shorter term, under which, in the event of his prior death, she would receive a pension equal to the entire pension of which he had himself been in receipt. For Mr Mostyn to submit to us that "the [first] wife repeatedly has tried to ignore the position of the second wife and to ascribe to the husband sole ownership of his family's income and capital" is, with respect, unsustainable.

How, then, did the judge seek to justify his fourth attribution? He said:

"In my judgment, it should not be overlooked that virtually the whole of the husband's current capital has been built up by him during his second marriage. I consider that [the second wife] has an entitlement to a substantial proportion of those assets. In view of the length of the marriage and her contribution to the welfare of the family, particularly, being a mother to two children, I consider that she must be entitled to at least 50% of those assets."

In my view it is clear that:

(a) by his reference to the length of the second marriage and the second wife's contribution to the welfare of the family, the judge was appraising the extent of her claims against the husband in the (entirely) hypothetical event of their divorce;

(b) the judge was then elevating her claims into the realms of an existing proprietary entitlement on her part; and

(c) he was treating the claims of a second wife, thus elevated, as directly and substantially reducing, indeed in the event as eliminating, the claims of a first wife.

Mr Wagstaffe seeks to persuade us that even the judge's appraisal at [35(a)] above was wrong and that, particularly in the light of the extent of the pension provision already proposed to be made for her in the event of the husband's prior death, the judge over-estimated the extent of the claims of the second wife upon hypothetical divorce. On any view, however, he convincingly attacks the judge's decision at [35(b)] above to elevate her claims into what he describes as a community of property regime. But, in explaining my conclusion that the judge was wrong to ascribe only one half of the pension to the husband, I wish in particular to address the priority given by him at [35(c)] above to the claims of a second wife over those of a first wife.

In Roberts v. Roberts [1970] P. 1 the Divisional Court of the Probate, Divorce and Admiralty Division allowed an appeal by a wife against an order of the justices that, out of a net income of £22 per week, her husband should pay only £2.50 per week for the maintenance of herself and their son. The reasoning of the justices was that the husband needed to apply the balance of his income to the support of himself and, in particular, of his cohabitant and two of her children. The court (Sir Jocelyn Simon P and Rees J)

(a) decided, at 3E, to survey the relevance not only of a husband's moral obligation to support a cohabitant but also of an ex-husband's legal obligation to support a second wife (on the basis that the claim of the former could not rank higher than that of the latter);

(b) held, at 6E to 8B, that not only an ex-husband's legal obligation to a second wife but also a moral obligation of a husband or ex-husband to a cohabitant had to be brought into account in assessing the level of his obligation to maintain a first wife; but

(c) held, at 8G, that "on general principle, a spouse must on marriage be presumed … to take the other subject to all existing encumbrances, whether known or not – for example … an obligation to support the wife or child of a dissolved marriage"; but

(d) considered, at 8H to 9F, that English law did not, as did some Commonwealth courts, take the principle to its logical conclusion by affording "primacy" or "priority" to the claims of the first wife; yet nevertheless

(e) concluded, at 5D and 10D, that a decision, such as that of the justices, to give such "priority" to the claims of the cohabitant (or second wife) as virtually to ignore the claims of the first wife was plainly wrong.

Any judge-made "principle" of family law enunciated over forty years ago requires rigorous scrutiny in case changed social conditions have rendered it obsolete. But I see no reason to conclude (and Mr Mostyn did not argue) that the principle enunciated in the case of Roberts and quoted at [37(c)] is obsolete. It has been applied in a few reported cases, albeit themselves also now old, and it remains in the text-books. But what was and is its effect? In the interests of realism and practicality the Divisional Court muffled it. And, to the muffling of it, we should certainly still subscribe. One may conclude with confidence only that the court should always have the principle in mind; that it should give effect to it where it reasonably can; and that, although it should not go so far as to give priority to the claims of the first wife, it should certainly not give priority to the claims of the second wife.

In my view the judge in the present case wrongly gave priority to the claims of the second wife. He lost sight of the principle in the case of Roberts. His fourth attribution to her was unprincipled. Whatever the length of the second marriage in relation to the first; however substantial the non-financial contribution made by the second wife to it; and whatever the extent to which the pension fund was built up out of the husband's earnings during its subsistence: it remained as illogical for the judge to attribute one half of the husband's pension income to the second wife as it would have been for the judge to have attributed one half of the husband's substantial earnings to her while he had remained in receipt of them. All the judge should have done was to take into account the husband's obligation to maintain the second wife to the extent to which she could not maintain herself out of the income already judicially attributed to her.

Thus the judge should have calculated the husband's total annual income not at between £46,000 and £53,000 net but at between £69,000 and £83,000 net. Had he done so, then no doubt he would have concluded that, even in the light of his obligation towards the second wife, the husband was in principle obliged to continue to make periodical payments to the (first) wife, in that she had a need to spend £48,000 p.a. to which she could reasonably make a contribution of only £32,000 p.a.

In that the judge therefore was swept into error almost immediately after embarkation on the journey charted by the case of Pearce, there is no need to dwell at length on the course which his journey thereafter took. It is enough to note that he calculated that, were she to amortise not just the proceeds of the desk amounting to £300,000 but also all her other liquid capital amounting to £380,000, the wife could generate an annual income precisely equivalent to the figure of £48,000 upon which he had ultimately alighted as representing her annual needs. It is primarily on that basis that he concluded that, within the meaning of s.31(7)(a) of the Act, she could adjust without undue hardship to the termination of the husband's periodical payments. The judge's premises were wrong so whether such a conclusion was open to him becomes an academic question. Mr Wagstaffe stresses that the judge's calculation did not even allow her to meet the cost of the necessary repairs to her home, whether in the sum of £82,000, £100,000 or otherwise; in my view such is a convincing criticism. Mr Mostyn, on the other hand, argues that, generously to her, the judge's calculation made no allowance for the probability that in due course the wife would move home and thereby release a substantial sum of liquid capital.

More widely, we have received interesting arguments about the circumstances in which the law expects a spouse to apply not only income but capital to the meeting of maintenance needs or obligations. There is no doubt that the case in which (let us say) a wife is most clearly expected to apply capital to the meeting of her maintenance needs is when, at arm's length following divorce, the husband agrees, or is ordered, to pay her a needs-based capital sum: such will still have been calculated by reference to the Duxbury formula, inherent in which is the principle of amortisation. There is, by contrast, no doubt that the court will not generally expect her to apply inherited capital (as opposed to the income generated therefrom) to the meeting of her maintenance needs: Lauder v. Lauder [2007] EWHC 1227, [2007] 2 FLR 802, per Baron J, at [64]. But I am clear that it is impossible to be categorical about what the law expects in this area. No doubt there are circumstances in which it is reasonable to order a husband to make periodical payments even though his income is insufficient to support them and he will therefore have to make them wholly or partly out of his capital; and, correspondingly, no doubt there are circumstances (see, for example, my conclusion in this very case at [44] below) in which it is reasonable to expect a wife to apply capital to the meeting of at any rate some of her maintenance needs even if it has come into her hands by inheritance or, more generally, otherwise than as a needs-based capital payment by the husband. Perhaps particularly when they reach or approach retirement and have reasonably significant capital assets (often the product of savings out of income), many people will treat the distinction between income and capital as fluid; the court will recognise this reality.

To the academic question my provisional answer is that the judge was plainly wrong to conclude that the wife could adjust without undue hardship to the termination of the husband's periodical payments on the basis that she could amortise her entire liquid capital. He did so in part by reference to the fact that she has no child for whom to make provision by will and to a conclusion that, insofar as she wished to provide by will for a niece, the value of her home would fall into her estate and would represent more than sufficient provision. In my view it is invidious for the court to try to analyse a person's relationships in order to seek to measure the extent of reasonable expectations of benefit under her or his estate.

Both parties agree that, if the exercise conducted by the judge were held to be flawed, it should be conducted by this court rather than remitted for rehearing. In the light of the figures which I have identified above and of all the other circumstances of the case to which regard must be had under s.31(7) of the Act, I consider that in principle the husband should continue to make periodical payments to the wife in the sum of £14,000 p.a; and they should be backdated so as to start on the date of the judge's order, namely 3 November 2009. Both parties seek capitalisation of the husband's obligation. For a woman aged 67, which the wife will become on 21 July 2010, capitalisation amounts, on the Duxbury formula, to £215,000. The sum is small in the context of the husband's overall wealth. He could clearly afford to pay it out of his share of the excess liquid proceeds of his home but in my view he could raise it almost forthwith and certainly by 21 July 2010, whether out of the liquid assets referred to at [22(a)] above or on a bridging basis. Such an award would enable the wife to apply an annual total of £46,000 to her maintenance need of £48,000. There would remain a nominal annual shortfall of £2000 which she would have to meet by modest application of her existing liquid capital or by sale of her home in due course.

I therefore propose that we should allow the appeal and insert into the judge's order provisions that the husband should make to the wife a lump sum payment of £215,000 on or before 21 July 2010 and, until payment thereof, interim periodical payments at the rate of £14,000 pa with effect from 3 November 2009.

Lord Justice Hughes:

I agree.

Lord Justice Patten:

I also agree.