England and Wales High Court (Family Division) Decisions

IN THE HIGH COURT OF JUSTICE
FAMILY DIVISION

		Royal Courts of Justice Strand WC2A 2LL
		17th January 2017

Tuesday, 17^th January 2017

JUDGMENT:

MR JUSTICE HOLMAN:

1. This is an application by a former husband ("the husband") to vary an order for spousal and child periodical payments made by Blair J on 7 November 2013. The essential factual situation was, and is, as follows. These parties were married and lived together for about 12 years. They have one son, who is now aged 12. The wife qualified as a mathematician, but it is clear from the judgment of Blair J that any current earning capacity for her is relatively speculative. He referred to her working history at paragraph 74 of his judgment of November 2013. At paragraph 90 of his judgment, he said:

"It is clear that the wife is well qualified and capable. In her evidence she made it clear that she would like to work, if at all possible. However, she also emphasised that her priority will be to look after [the child] ... I consider that, whilst the wife has in many ways a significant employment potential, the positions that she may realistically be expected to fill are likely to be quite limited ..."

2. Time has, of course, gone on since November 2013. The current position is that the wife does not work. She is now aged almost 50. Although she has her degree in mathematics, she lacks any formal professional or vocational qualifications. She told me today that, in the last few years, she has in fact invested about £80,000 in a business start-up project which, unfortunately, was unsuccessful and, effectively, she lost the money. So I have to proceed today on the basis that this wife has no recent history of earning capacity and Blair J made a decision that she should receive significant levels of maintenance, not only for the son, but also for herself, without limit of time. Save for the residue of the lump sum of £1.6 million, to which I will shortly refer, the wife has no capital.
3. On the husband's side, he is now aged 65. He has not worked for many years. He was, indeed, at one stage a relatively wealthy man, the wealth all being derived from his late father. At paragraph 60 of the judgment of Blair J, he referred back to findings of Connell J in the earlier divorce proceedings between the husband and his first wife. Blair J said:

"Connell J found that it was unlikely that the husband would ever earn any worthwhile income independent of his father. Subsequent events have confirmed that finding. Since his father's death, the husband has maintained himself by drawing down on the foundation. At the age of 62, it is extremely unlikely that anything will change."

Several years have now elapsed since then, during which the husband has not demonstrated any earning capacity of his own, and, clearly, with that history and at his age and stage of life, I must, as I do, take him as a man who has no earning capacity of his own, independent of his, essentially inherited, wealth.

4. At the time of the hearing before Blair J, the wife had no capital to speak of. The husband's capital broadly fell into two heads. First, he is effectively entitled to the capital in what was described as the "family foundation". Second, he was treated as the beneficial owner of a house in London, although the legal title is vested in some offshore company. At the time of the hearing in November 2013, the wife and child were still residing in the house. The husband had vacated it and was living in temporary and makeshift accommodation elsewhere. Blair J ordered that the house should be sold (it was indeed already on the market at that time) and that, upon completion of the sale, the husband must pay to the wife a lump sum of £1.6 million. Meantime, she was permitted to remain residing there and he was required to meet the principal outgoings and, also, to pay periodical payments at the rate of £55,000 per annum for the wife and £10,000 per annum for the child, totalling £65,000 per annum, plus school fees and various defined extras in relation to schooling.
5. It is absolutely clear, from a combination of the order of Blair J and his judgment of November 2013, that he contemplated, and I dare say both parties also contemplated, that the house would have been sold long ago; the wife would have vacated upon sale; and, at that point, been paid the lump sum of £1.6 million with which, at that point, to purchase alternative accommodation for herself. Matters have not turned out like that.
6. The husband claims that, despite every endeavour on his part and by many estate agents, it has not been possible to sell the house for any sum which fairly represents its value. At paragraph 57 of his judgment, Blair J stated that "on the evidence, I consider that the likely value of the house is £6 million, sale costs being agreed at £150,000". The husband says that various offers have from time to time been made around the £6 million mark, but none of them has fructified in sale for one reason or another.
7. Meantime, the husband reached a point when he wished to procure that the wife moved out of the house by paying to her, in advance of sale, the lump sum of £1.6 million. He raised this by borrowing from the bank, which is the bank to the family foundation. That bank lent £1.6 million which, effectively, is "secured" against the assets of the family foundation. This enabled the husband to pay £1.6 million to the wife and, after that payment, she did vacate the house. Initially, she did not purchase any alternative accommodation but, rather, rented a property, close to the school which the son was then attending and, currently, still is attending.
8. The contractual rate of interest upon this loan which the husband obtained in order to pay the £1.6 million is four per cent (£64,000 per annum). The effective case and position of the husband is that, as he has not been able to achieve a sale of the house, he has now been faced with paying that interest for a prolonged period of time and simply cannot afford, concurrently, to pay the interest as well as maintain the currently ordered levels of periodical payments and, also, the school fees. I stress and record that the husband has made crystal clear several times today that, come what may, he will always ensure that the school fees for their son are paid punctually and in full, and, in everything which I say in this judgment and decide today, I rely absolutely upon the husband being as good as his word in relation to the school fees. But that does not alter the essential dilemma that, currently, the husband is burdened by an obligation to pay interest in the significant sum of £64,000, having made that decision to pay the lump sum to the wife sooner than he needed to. It could, of course, be argued that that was his own unilateral decision, he went into it with his eyes open and should now carry the consequences. But family law has to be reactive to the realities of financial situations as they evolve.
9. The upshot is that, with effect from the payment due on 8 July 2016, the husband has not made any periodical payments (other than school fees) for either the wife or the child. The established date of payment is the 8^th each month. Today is 17 January 2017, so there are, currently, seven missed payments at the rate of £5,417 per month, or total arrears of £37,919.
10. The husband says that his financial position currently is as follows. There is the longstanding mortgage on the house, of £3,030,000. There are estimated costs of sale of that house, which Blair J took at £150,000 but the husband says are now more of the order of £200,000, and, if it does sell for £6 million, there is an estimated liability to CGT which Blair J took, at paragraphs 58 and 61 of his judgment, as £463,429, which I will round up to £465,000. Making all those deductions, if the house were now to sell for £6 million, the net proceeds would be about £2,305,000. If the house were to sell for significantly less, that would of course lead to some adjustment of both the costs of sale and the inherent CGT but roughly, for every £1 million less of gross selling price, there would be about £1 million reduction in the net proceeds of sale. That is significant for if, in truth, this house can only be sold for, say, £5 million, then it will net to the husband nearer to £1.3 million. If it were to sell for only £4.5 million, it would net to the husband no more than £1 million.
11. The other resource of the husband remains the funds in the family foundation. I have been told that they currently stand at about £2.4 million, of which £1.6 million is, in effect, carved out to repay the loan which the husband raised with which to pay the £1.6 million to the wife, unless of course he repays it out of the net proceeds of sale of the house. If he were to do that, then the amount left to him from the net proceeds of sale would be reduced in the same amount.
12. The net amount in the family foundation is now somewhere of the order of £800,000. If indeed the husband is able to sell the house for £6 million or thereabouts, then his overall capital position, aggregating £2.3 million and £800,000, would be about £3.1 million; still significantly stronger than that of the wife. But the marker needs clearly to be recognised in this case that if, in truth, the house can only be sold for £5 million or less, then the capital positions of the husband and the wife would rapidly be approaching parity.
13. As I will shortly describe, the wife has very recently bought a flat in [Y] for a gross purchase price of £1.4 million. There is indeed absolutely no reason or justification in this case why the husband (all the money originally having been his) should notionally be rehoused at any lesser sum than the wife. That being so, if the gross selling price of the house falls at all significantly below £6 million, the net amount of capital left out of which to provide income for both the wife and the child and, also, the husband will be rapidly diminishing and, indeed, it is difficult to see how the levels of maintenance fixed by Blair J could possibly be maintained. That, however, is all for the future, since it remains uncertain and speculative what the final gross selling price of the house will be.
14. The wife told me this morning - and this appears to have come as a bolt from the blue to the husband while sitting in the courtroom - that she has very recently completed the purchase of a flat in [Y]. She selected [Y] as the parties have now agreed (it is one thing upon which they appear completely to agree) that their son will, from September 2017, start at a school in [Y]. The wife said that the gross purchase price of her new flat was £1,405,000, the stamp duty upon it was £80,000 and the total cost to her, including legal fees, was £1,493,000. She said that she has had to give two months' notice to the landlord of the flat which she currently rents and that she will be moving to the new flat in [Y] at the end of March 2017.
15. There is no doubt that the husband was taken greatly by surprise at this news during the course of the hearing this morning and, frankly, became very agitated by it. He initially said, most vehemently, that she had been "stupid" to purchase a flat at this stage, although, after the lunch break, he returned and revised the adjective "stupid" to substitute the adjective "clever". What he underlyingly means is that she was devious and manipulative to purchase a flat at this juncture, and he believes that she did so in order, in some way, to force the hand of the court at this hearing which had long been fixed for 17 January 2017. The reason he says that is bound up, in part, with the course of a hearing before District Judge Gibson on 31 August 2016. At that hearing, the wife was seeking some order to enforce the arrears of periodical payments, which were then beginning to mount. The district judge clearly took the view that, as the house had not been sold and that, meantime, the wife was, as it were, sitting on an invested capital sum of £1,600,000, the arrears of maintenance should not be currently enforced and the wife could, meantime, support herself out of that invested £1.6 million. That is all very clear from the official transcript of the hearing of 31 August 2016, which I have read.
16. The formal order of 31 August 2016 includes a recital that the husband had paid the sum of £1.6 million to the wife "... and in advance of the sale of the house and that the [wife] still retains that sum and has not yet purchased a property with the same". So the husband, clearly, strongly feels that the wife has somewhat deliberately gone out, since that hearing on 31 August 2016 but before today, to purchase a property so that it can no longer be said that she "still retains that sum".
17. I have, and express, no view as to whether the wife was in the least devious or manipulative in making a purchase at this particular stage of these proceedings. Neither party has given oral evidence and it would be quite wrong of me to make any sort of judgment or assessment about that. But I do make absolutely clear that it seems to me eminently reasonable that the wife, having been paid the sum of £1.6 million by the husband, should by now have expended it on the purchase of a new home. It is patent that, when he made his decision and order in November 2013, Blair J contemplated and expected that, long ago, the house would have been sold, the wife would have received her lump sum, and she would have purchased an alternative home and, by now, be living in it. She has delayed until it was clear where their son would be going to school next September. Relatively recently, he has received an unconditional offer of a place, so she has now had the confidence to buy in the [Y] area, knowing that, for the next several years, that is where their son would be at school. In any event, that is what the wife has done, and she proposes, shortly, to move into her new home.
18. She has told me today, and, to some extent, demonstrated by production of bank statements and similar documents, that her residual capital as of today is, roughly, as follows: £45,000 in the Santander Building Society, £3,000 in an account with NatWest Bank, and £2,300 in an account with Barclays Bank, totalling about £50,000. Additionally, she has some investments in an organisation called "St. James' Place", currently worth about £28,450. So the aggregate remaining liquid capital of the wife is about £78,000. Clearly, it would be unconscionable if any significant amount of that were now dissipated in current weekly and monthly outgoings, when the order of Blair J clearly contemplated continuing significant periodical payments by the husband. On the other hand, I have to perform a fair balance between the respective positions of the wife and the husband, and I can, and do, take into account that she does still have that available liquid capital of about £78,000.
19. It seems to me, in this difficult situation, that I cannot, as the husband seeks, suspend or reduce to zero any current liability to make periodical payments. If I were to do so, the wife would very rapidly exhaust all her remaining capital, which, frankly, would not be fair to her. On the other hand, I accept that, currently, the husband is squeezed because he has committed himself to very high interest payments in order to fund the accelerated payment of the £1.6 million, the benefit of which the wife now enjoys.
20. I am not willing in any way at all to remit for all time any of the current or future arrears. It seems to me that those must be paid out of the net proceeds of sale of the house when received. As I have indicated, it may be, depending upon the final sale price, that the husband will have a strong case for a long-term variation downwards of the periodical payments, but that remains speculative until the actual sale price is established and known. But it does seem to me that, in the meantime, I must reduce, to some degree, the current pressure from one month to the next upon the husband.
21. My decision is that, instead of having, currently, to make monthly payments in the aggregate sum of £5,417 per month, the husband must make monthly payments in the aggregate sum of £3,500 per month, which is at the annual rate of £42,000. To that extent, there will be a suspension of the order for periodical payments made by Blair J in November 2013. I have drafted detailed terms of order, with care, and I already have been through them with both parties to ensure that they understand them.
22. I stress that none of the arrears is remitted, and, on the date of completion of the sale, a calculation must be performed of the arrears as they are at that date and they must be paid in full to the wife, out of the net proceeds of sale. The husband must instruct the conveyancing solicitors forthwith to make that payment, but, meantime, with effect from the next payday of 8 February 2017 and on the 8^th day of each month after that until completion of sale, I require the husband to pay only at the rate of £3,500 per month. I stress again that he must also pay the school fees and the specified extras in full and I am relying absolutely on his integrity and his assurances that he will do that.