England and Wales High Court (Family Division) Decisions

IN THE HIGH COURT OF JUSTICE
FAMILY DIVISION

		Claim No.: FD 09 D 02987 Royal Courts of Justice Strand, London WC2A 2LL
		28th April 2015

Mr Justice Moor:

1. This is an appeal from an order made by DDJ O'Leary, dated 4^th September 2014. The judgment was not finally delivered until 19^th September. Therefore, I take the view that the date of the order should be 19^th September 2014.
2. I am going to refer to the parties as the husband and the wife, even though they have been divorced since 2011 and the husband has remarried. I mean no disrespect by referring to them as such. I do so merely for the sake of convenience.
3. The husband was born on 7^th March 1969. He is aged 46. He is a qualified accountant and a head analyst in the European Finance Department of a Bank.
4. The wife was born on 7^th November 1978. She is aged 36. She is a litigation executive with a law firm. She has, at times, been described as a paralegal. She has undertaken her examinations to become a legal executive.
5. The parties married on 13^th July 2001. Their matrimonial home was at a property in Kent. They have two children. The first of those two children is SD, who is 13 years of age. She is in the senior school at an independent girl's school. The second of the two children is ED, who is aged 10. She is in the junior department of that same school.
6. The school fees for 2015/2016 will be £5,135 per term for senior girls, or £15,405 per annum, and £4,141 per term for junior school pupils, or £12,423 per annum. I assume that ED has one more year in the junior school before going on to the senior school.
7. The parties separated on 19^th April 2009. The wife petitioned for divorce on 16^th June 2009 and filed her Form A on 14^th August 2009. A decree nisi was pronounced on 27^th October 2009.
8. The parties managed to reach an agreement as to their finances. DJ Reid approved their consent order on 8^th June 2011. The order is quite complicated. I will set out only the most salient points. The husband was to pay the private medical insurance of the wife, for so long as there was a periodical payments order in her favour. The matrimonial home was to be transferred to the wife. The husband wished to be released from the mortgage. I understand that the wife borrowed approximately £144,693 as an additional sum from her parents, in order to enable her to deal with this, as well as taking a mortgage herself of £189,000.
9. In addition, the husband was to pay to the wife spousal periodical payments of £500 per month until the youngest child attained the age of 18 or ceased full-time secondary education, whichever was the later. This was, therefore, an extendable term order.
10. The husband was also to pay to the wife, for the benefit of the children, the amount of maintenance that would be calculated in accordance with the Child Support Act formula. He was also to pay her 20% of his annual bonus, for the benefit of the children. That was to be reduced to 15% after SD became an adult. The husband was also to pay ED's school fees and a further 25% of his annual bonus to the wife as a contribution towards SD's school fees.
11. On 10^th June 2011, the decree absolute was pronounced. On 5^th March 2013, the husband applied to vary the periodical payments. He sought relief from the spousal periodical payments, which he asked to be reduced to nominal, and for the wife to pay SD's school fees in their entirety. It appears that there had been a reduction in the quantum of his bonus. However, his basic salary had increased by £30,000 to £115,000 per year. It is said that it has increased further since.
12. In April 2013, the wife's salary dropped to £18,000 per annum. The wife cross-applied on 22^nd April 2013. She conceded nominal spousal maintenance, but on the basis that the husband would pay SD's school fees in full.
13. The parties filed their Forms E in April 2013. The husband's showed a P60 of £156,656, which gave him a net income of £93,977. His outgoings were £4,851 per month and, for the children, £2,429, making a total of £7,280 per month, or £87,360 per annum. The husband's partner, Mrs BD, is also employed by a bank. At that point, her income was £61,000 per annum gross.
14. The wife's Form E discloses an earned income of £17,959 gross, which was £15,853 net. The child maintenance at the time was £16,844, plus the spousal maintenance. She indicated outgoings of £68,007 per annum and said that there was a real risk of her being made redundant.
15. In August 2013, the husband married Mrs BD. They are presently living with his mother, as a result of two factors; first, due to his mother's ill health and, secondly, due to the need to save for a deposit for a home of their own.
16. The matter came before DDJ O'Leary on 3^rd September 2014. The hearing took two days. She heard oral evidence from both parties and reserved judgment. I have already indicated the inconsistency in relation to the date of the order. The order itself provided that, on the basis that the husband agreed to pay 50% of any extras for both girls, the spousal maintenance was to cease forthwith. There was to be a clean break. The arrangements for SD were to continue as per the original order. If she obtained a scholarship, the husband would continue to make the payments as per the order of DJ Reid. I understand that SD has not obtained such a scholarship.
17. The first judgment from DDJ O'Leary was a draft sent on 5^th September. There followed a number of emails between the Deputy District Judge and the two counsel then instructed. These were commenced because counsel for the wife indicated an intention to appeal and said that there was no proper analysis of the respective financial positions in the draft judgment. As a result, the Deputy District Judge made some amendments to the draft.
18. In this appeal, the wife makes significant complaint about what happened in those emails following the first draft. It is said that the Deputy District Judge acted on the submissions made by the husband's then counsel, without giving a proper opportunity to the wife's counsel to respond.
19. Whilst it may be that there is some force in those complaints, I have decided to confine my consideration to the merits of the appeal itself. I accept Mr Horton's submission that the appeal is from the order, not the judgment (see the decision of the Court of Appeal in Vaughan v Vaughan [2007] EWCA 1085; [2008] 1 FLR 1108). However, I also consider that on this appeal the wife must now have the opportunity to respond to anything that was put forward in the husband's further submissions to the Deputy District Judge.
20. As I have indicated, the reviewed judgment was produced on 19^th September 2014. The Deputy District Judge recited that the husband had told her that he had brought the case back because he did not think the court order was fair. She found that the wife did earn £40,000 gross in 2013, but that this was not the position now. She also found that the husband had completely overlooked the wife's childcare responsibilities and the impact of the Jackson reforms on the area of work in which she specialises, namely personal injury. The Deputy District Judge, therefore, did not accept that the wife could earn £40,000 per annum. It is quite clear that the Judge accepted the wife's earnings disclosed as being her earning capacity.
21. Furthermore, the Deputy District Judge found that there was no cohabitation between the wife and her boyfriend, Mr X. She also found that there was no financial support from Mr X to the wife, although it does appear that he has been lending her his car when he does not need it.
22. The Deputy District Judge also found that the husband's bonuses have not been as great in the last couple of years, but that, nevertheless, the wife had still been earning far less than the husband. She found that his earnings were £163,692 per annum gross, and that his second wife earned approximately £50,000 per annum.
23. The Deputy District Judge also said that the wife was trying to amend the original order in relation to SD's school fees. That is, of course, correct. However, the way in which it is termed in the judgment appears to amount to a criticism. That cannot be right, in circumstances where the husband was, himself, trying to do exactly the same in relation to the order for maintenance.
24. The Deputy District Judge also found that the wife's forecasted budget was unrealistic and said that she was able to top-up SD's school fees where necessary. She said that there were other claims that the wife could make, such as child or working tax credit. Complaint is made about that, as it is said that this was only introduced by counsel for the husband after the delivery of the draft judgment. That is not accepted by Mr Horton, who points to a reference to it in the documents before the Deputy District Judge. Nevertheless, there is no doubt that it was not canvassed fully before her.
25. Finally, the Deputy District Judge came to the conclusion that there should be a clean break, saying that the wife does not need the safety net of a nominal periodical payments order and that the medical insurance did not affect the position. She said that, in part, the wife relied on a fear of future litigation.
26. The wife's Notice of Appeal is dated October 2014. It argues that the order has imposed undue financial hardship on her, that it was plainly wrong to dismiss her maintenance order and plainly wrong to require her to pay for SD's school fees in part.
27. The grounds of appeal include that the Deputy District Judge had concluded that the wife should not be expected to resume higher earning rates, that her boyfriend was not providing any financial support, that the wife's budget was not properly analysed in the judgment and that, if it was properly analysed, it did not enable the wife to meet the remaining school fees burden. It is said that it was wrong to assume that she was entitled to child and working tax credits.
28. In the light of that, Parker J gave permission to appeal on 24^th November 2014. It was thus set down for a one day hearing today.
29. On 6^th February, the husband made an open offer, although it is right to note that this has now lapsed. He proposed that the order would remain the same, but that up to 80% of his bonus would be paid towards school fees, up to the maximum of those school fees. I am told that in March of this year he received a bonus of £54,990 gross plus 639 shares. His total remuneration is said to now be £195,772 gross per annum.

The Law

30. Parker J gave permission to appeal on 24^th November 2014. It follows that she must have been satisfied, pursuant to FPR 30.3, that the appeal either has a real prospect of success or that there was some other compelling reason why the appeal should be heard. It appears that the husband was not served with the notice of the hearing. Paragraph 4.1(5) of the Practice Direction does say that a respondent should be given notice of the permission hearing, but is not required to attend unless requested to do so by the court. If the notice had been given, it would have had stamped on it "Only the Appellant/Appellant's representation to attend". Indeed, page 2085 of the Red Book says that a respondent should not attend.
31. Whilst I am not sure where that originates from, I am quite clear that a respondent should not attend. If the court wants a respondent present, it will direct attendance. There are a significant number of cases where permission to appeal is refused. There is no need at all to involve respondents in those cases. There are even more cases where the initial application, regrettably, becomes a directions hearing, often because there is no transcript of the judgment. Again, there is absolutely no reason whatsoever for a respondent to be present at such a hearing.
32. There are very few cases where the presence of a respondent, or a respondent's legal team, would assist. If such a case does present itself, the judge will make an order for them to attend. Therefore, I take the view that the current procedure is fair, proportionate, saves costs and makes the administration of justice simpler and more straightforward.
33. The test I have to apply is to be found in Rule 30.12:

"(1) Every appeal will be limited to a review of the decision of the lower court unless –

(a) an enactment or practice direction makes different provision for a particular category of appeal; or

(b) the court considers that in the circumstances of an individual appeal it would be in the interests of justice to hold a re-hearing.

(2) Unless it orders otherwise, the appeal court will not receive –

(a) oral evidence; or

(b) evidence which was not before the lower court.

(3) The appeal court will allow an appeal where the decision of the lower court was –

(a) wrong; or

(b) unjust because of a serious procedural or other irregularity in the proceedings in the lower court."

34. I have not conducted a rehearing. I have not heard oral evidence. I have been flexible in permitting some evidence to be placed before me, which was not before the lower court. I am satisfied that I have to apply the law as set out in the decision of the Supreme Court in Re B [2013] UKSC 33; [2013] 1 WLR 1911, which has been drawn to my attention by Mr Horton.
35. Financial remedy applications involve the exercise of a discretion by the judge. A decision will only be wrong if it was outside the band of reasonable decisions that the tribunal could have taken. This used to be described by the phrase "plainly wrong". Baroness Hale in Re B makes it clear that the test remains the same today, as it did before Re B was decided. It is highly unlikely that two different judges will exercise their discretion in absolutely identical ways. That does not mean that one of them is wrong. I have to decide if the exercise of discretion, in this case, was outside the band of reasonable decisions that different judges could have come to. In other words, was the exercise of discretion unreasonable? If it cannot be said that it was unreasonable, the appeal will be dismissed.
36. I remind myself that the Deputy District Judge was considering section 31(7) of the Matrimonial Causes Act 1973 as amended, which provides:

"In exercising the powers conferred by this section [that is, on an application to vary] the court shall have regard to all the circumstances of the case, first consideration being given to the welfare while a minor of any child of the family who has not attained the age of eighteen, and the circumstances of the case shall include any change in any of the matters to which the court was required to have regard when making the order to which the application relates."

I am satisfied, as submitted to me by Mr Horton, that this means that the court can in fact vary, even where there has not been a change of circumstances, although I consider that it would be highly unusual for that to occur. In any event, it does not matter here as there clearly have been changes of circumstances.

37. The section goes on to say:

"(a) in the case of a periodical payments or secured periodical payments order made on or after the grant of a decree of divorce or nullity of marriage, the court shall consider whether in all the circumstances and after having regard to any such change it would be appropriate to vary the order so that payments under the order are required to be made or secured only for such further period as will in the opinion of the court be sufficient (in the light of any proposed exercise by the court, where the marriage has been dissolved, of its powers under subsection (7B) below) to enable the party in whose favour the order was made to adjust without undue hardship to the termination of those payments."

It has been said in the past that this section, which was included by Parliament as a result of the 1984 Act, is a stiff one. On a literal reading, it is clear that there can be hardship. There just must not be undue hardship.

The Submissions

38. I have heard detailed submissions from very experienced counsel: Mr Leech QC for the wife and Mr Horton for the husband. Mr Leech submits that the result of the Deputy District Judge's order is extraordinary, given that the wife's net income is some £15,000 per annum, yet, he submits, she is having to pay around £7,500 per annum for SD's school fees. He argues that the judgment failed to make any findings as to needs and affordability.
39. Furthermore, Mr Leech submits that there was no proper analysis of whether it was fair to impose an immediate clean break. He says that there were no findings as to the wife's needs. He argues that the husband is left with a disposable income of just under £70,000, plus his second wife earns just under £55,000 net. He compares that to his calculation of the wife's income at only £25,205. He says that she has a deficit of approximately £18,720 per annum on the budget that was before the Deputy District Judge.
40. Mr Leech also tells me that the wife's tax credits ended in 2012. He says that she is now earning too much for working tax credit and does not do enough hours for child tax credit. He relies on the case of Radmacher v Granatino [2010] UKSC 42 in relation to the agreement that the parties reached in the run-up to the 2011 order.
41. I do not see how it can be right to rely on Radmacher v Granatino, given that the wife also wishes to go behind the carefully crafted agreement in relation to the payment of school fees. In any event, I must apply the words of the statute.
42. Mr Horton began with a criticism of the wife's evidence in relation to the financial position of her boyfriend, Mr X. I do not accept that criticism for two reasons. First, Mr Leech has been able to satisfy me that the wife did not give misleading or untrue evidence in that regard. Secondly, I consider the matter is not relevant for two reasons: (1) there was a finding of non-cohabitation and no financial support and (2) the wife agrees a nominal maintenance order. I do not, therefore, see how the position of Mr X is of relevance.
43. Mr Horton goes on to rely heavily on the finding of the Deputy District Judge that the wife did not need a safety net. He argued strongly that the Deputy District Judge cannot be said to be plainly wrong. He relies on the decision of the Court of Appeal in the case of Matthews v Matthews [2013] EWCA Civ 1874; [2014] 2 FLR 1259. I will return to that case in due course.
44. Mr Horton further submits that granting the wife's application for the husband to pay the school fees of SD would be to re-write the carefully crafted terms of the original order. For exactly the same reason as I rejected that submission from Mr Leech, I reject it in relation to Mr Horton. After all, his client now seeks a clean break.
45. Mr Horton says that the wife is entitled to the child tax credit of £5,020 per annum. He produces a number of schedules that I will return to in due course, showing his case as to the respective net incomes and the wife's reasonable outgoings.

My conclusions

46. I accept Mr Leech's submissions that the judgment does not adequately make findings as to the respective financial positions of each party, as a result of the order made. In particular, there is insufficient analysis of the respective net incomes and outgoings. It follows that I am satisfied that I am entitled to look at this aspect again.
47. I have considered Mr Horton's schedules with great care. In 2015, the husband's projected net income is £106,763, of which the new order requires him to pay £13,041 child support out of his basic salary and £6,138 out of his bonus. He is then required to pay £7,673 towards SD's school fees from his bonus and ED's school fees in full, which is a total of £12,423. By my calculations, this makes total financial provision for the children of £39,275 per annum. I calculate that this leaves him with £67,488 net. However, that does not include his half of the extras.
48. The husband's second wife has a net income of around £54,000 per annum. I accept that her income is of no relevance whatsoever to the husband's ability to pay child periodical payments or school fees. However, it is relevant to his outgoings, as she will be able to make a contribution to their living expenses.
49. The wife's position, on the other hand, is very different. Her net income will be £15,535 per annum. She will then have the maintenance of £13,041 and £6,138, along with a further £912 in relation to the share allocation. She will have child benefit of £1,788 and the husband's contribution of £7,673 to SD's school fees.
50. I reject the contention that the wife will have child tax credit, said to be £5,100 per annum. It is for the husband to prove that and he has not done so. The wife says that she does not receive this sum, as it stopped in 2012. She says that she does not do sufficient hours. I cannot proceed on the basis that this is wrong.
51. The wife's total income, therefore, is £45,087. She will have to pay SD's school fees out of this sum, which next year will be £15,405. This leaves her £29,682 for herself and the two children, who spend the majority of their time with her. It compares to the figure of £67,488 for the husband, who has the children for a minority of the time. This calculation immediately shows the disproportionate result of the Deputy District Judge's order.
52. I do accept that housing has to be factored in. The wife has a mortgage on the matrimonial home. It appears to cost her some £490 per month on an interest only basis. The husband and his second wife are entitled to a home of their own. Mr Horton suggested a £600,000 mortgage. He postulated that this would cost around £40,000 per annum, on a repayment basis at 3.5% interest.
53. However, I have to compare like with like. If the wife's mortgage is considered as interest only, so must the husband's. On that basis, I calculate the payments would be £21,000 per annum. I accept that his second wife should be making a contribution. If it was equal, it would be £10,500 per annum, which would mean that the husband's net income would reduce to £56,988 and the wife's, on the basis of her mortgage, to £23,802. Again, the disparity is significant and cannot be right.
54. I have carefully considered Mr Horton's list of outgoings for the wife. I consider that some are simply not generous enough. However, in total, they come to £51,269, as against an income of £45,088. She is, therefore, £6,181 short on Mr Horton's figures. If the husband is ordered to pay the school fees for both children, he will have to find a further £7,732. This will just restore the wife to credit, ignoring the fact that I consider some of her outgoings understated by Mr Horton. If the husband is ordered to pay the entire school fees for both children, I calculate that he will be left with £59,756 for himself and the children, when they are with him, as against £37,414 for the wife.
55. It follows that I am quite satisfied that the Deputy District Judge fell into error in requiring the wife to pay half of SD's school fees, whilst, at the same time, reducing her spousal maintenance by £6,000 per annum. The order was made in 2011. The husband's net income at that time was £104,057. It is now £106,763. Why should he, therefore, be relieved of the burden of paying the wife £6,000 per annum in those circumstances, particularly when her income has fallen during that period, unless he is to take on the balance of SD's school fees as a quid pro quo?
56. Both parties want their children to attend private school and both have to make sacrifices as a result. I am satisfied that the Deputy District Judge erred in finding that the wife could afford SD's school fees in their entirety, as well as doing without her £6,000 periodical payments. Therefore, I allow the appeal in that regard.
57. I order the husband to pay the school fees of both children in full. The order for 25% of the bonus will be discharged, but not the 20% by way of child support.
58. So far as extras are concerned, I take the view that this arrangement is not working. It appears that there are significant extras, both on the bill and off the bill. I have come to the conclusion that the best way to do this fairly is to require the wife to pay the extras off the bill and the husband to pay those on the bill. I entirely accept Mr Horton's submission that they should not be more than £500 in one go, unless the husband agrees in advance. I have in mind, for example, a skiing trip, which would probably exceed £500.
59. I now turn to the aspect of the case with which I have had the most difficulty, namely the clean break. The statute says that there should be the termination of periodical payments unless the payee cannot adjust without undue hardship to their termination. The wife has agreed to nominal periodical payments. It might, rhetorically, be asked how, in such circumstances, she can say that she cannot adjust without undue hardship to their termination.
60. The wife raises two arguments in relation to this. The first is private healthcare. I have imposed a significant burden upon this husband in relation to school fees. I have said that both parents have to make sacrifices if their children are to be educated privately. I am not satisfied that the husband should have to maintain the wife's private healthcare and he is released from that undertaking.
61. The second argument raised by Mr Leech is the safety net argument. It is said that the wife might, at some point in the future, be unable to work. She might lose her job. She might not be able to find another one. There are so many imponderables in this life. It is impossible to operate a crystal ball and be able to determine what may possibly happen at some point in the next eight or so years. I cannot ignore the significant support she has had from her family. Who knows what will happen in future with Mr X. I remind myself that there can be some hardship, albeit not undue hardship.
62. I now return, as I indicated I would, to the case of Matthews. In that case, Mostyn J had imposed a clean break on a wife with two children aged six and three. She had an earning capacity of £40,000 per annum, which I accept in that case was higher than that of her husband, whose earning capacity was only £27,000 per annum. The safety net argument did not cut any ice with Mostyn J. The Court of Appeal dismissed the appeal on the basis that it could not be said that Mostyn J was plainly wrong.
63. I have come to the conclusion that it cannot be said that the decision of the Deputy District Judge was plainly wrong or outside the band of possible orders that she might have come to. Some judges would have retained the nominal order. She did not. The fact that I have found her to have erred elsewhere does not, in my view, undermine everything in her judgment. Rule 30.11 permits me to set aside or vary the order below, so it must be possible to part allow an appeal, but leave other provisions intact.
64. Therefore, I decline to set aside that part. Section 31(7) must be applied by a first instance judge. This Deputy District Judge did exactly that. I cannot find that she was outside the band of possible decisions when she came to that conclusion. Indeed, it could be argued that she was right to come to that conclusion in all the circumstances of this case. So far as that is concerned, the appeal is, therefore, dismissed.
(Legal Argument)
65. This is a tricky little issue about whether or not a Calderbank offer is admissible in relation to an appeal. I am slightly surprised that the issue has not arisen before. It has arisen before Mostyn J in the case of KS v ND (Schedule 1: Appeal: Costs) [2013] EWHC 464 (Fam), when he did admit Calderbank letters. However, as Mr Horton has rightly pointed out, that case concerned Schedule 1 of the Children Act, to which the principle of 'no order as to costs' does not apply.
66. The rules of financial remedy proceedings do impose a presumption of no order as to costs. They say, at FPR 28.3(8):

"(8) No offer to settle which is not an open offer to settle is admissible at any stage of the proceedings, except as provided by rule 9.17 [which does not apply in this case because it relates to financial dispute resolution hearings]."

67. Therefore, I have to construe the words "at any stage of the proceedings". Mr Leech draws my attention to the definition of financial remedy proceedings both in (4) of that rule and in Rule 2.3. He says that there is absolutely no mention there of appeals. He also relies on the case of Judge v Judge [2008] EWCA Civ 1458, in which the Court of Appeal determined that an application to set aside a consent order was not financial remedy proceedings, because it was a different type of application.
68. There is also, in my view, the issue of encouraging litigation to settle. I am acutely aware of the need for parties to be able to protect themselves in relation to the damaging cost of appeals. I have come to the clear conclusion that when it says, in Rule 28.3(8), "No offer to settle which is not an open offer to settle is admissible at any stage of the proceedings" it is referring to first instance proceedings. I take the view that an appeal brings it out of that regime, in the same way that the application to set aside in the case of Judge was not within that regime.
69. By coming to that conclusion, there is the added advantage that litigants are able to protect themselves in appeals where the costs of the appeal can be totally disproportionate to the amount at stake. Therefore, I am prepared to admit any Calderbank offer.
(Legal Argument)
70. I now deal with the question of costs. There is not, in fact, in my view, a Calderbank offer in this case which bites. I do not consider that the October 2014 Calderbank offer made by the wife, which indicated that the husband should pay all the school fees but with spousal maintenance to be nominal, to be anything more than the wife's submissions before the Deputy District Judge.
71. Equally, however, I do not accept Mr Horton's submission that this is a score-draw. This was a properly constituted appeal for which leave had been given. The very giving of leave was a very significant indication that there was something here which was probably wrong and which had to be, at the very least, addressed or considered. Moreover, the appeal was successful in significant part.
72. I have come to the conclusion that I should make a costs order in favour of the wife, but not for the totality of her costs. I am going to order that the husband pay 75% of her costs, on the standard basis. I am going to assess them at £7,500, inclusive of VAT.