Supreme Court of Ireland Decisions

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Cite as: [2006] IESC 4, [2006] 1 IR 283, [2006] 1 ILRM 534

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Judgment Title: K -v- K

Neutral Citation: [2006] IESC 4

Supreme Court Record Number: 435/03

High Court Record Number: 1999 49 M

Date of Delivery: 09/02/2006

Court: Supreme Court

Composition of Court: Geoghegan J., McCracken J., Kearns J.

Judgment by: McCracken J.

Status of Judgment: Approved


Judgments by	Result	Concurring
McCracken J.	Other (see notes)	Geoghegan J., Kearns J.

Notes on Memo: Vary and Afirm

- 13 -

THE SUPREME COURT

(Record No. 435/03)

Geoghegan J.
McCracken J.
Kearns J.

BETWEEN

M.K.

APPLICANT/RESPONDENT

and

J.P.K.

RESPONDENT/APPELLANT

Judgment of McCracken J. delivered the 9th day of February 2006

HISTORY OF PROCEEDINGS

These proceedings have a lengthy and somewhat unfortunate history. They commenced by way of a Family Law Civil Bill in the Circuit Court on 3rd June 1998 in which the applicant/respondent (herein called “the wife”) sought a decree of divorce and a number of ancillary orders against the respondent/appellant (herein called “the husband”). On 14th July 1998 she obtained an order for interim maintenance and on 15th February 1999 she applied to transfer the proceedings to the High Court. This application was refused in the Circuit Court but on 23rd April 1999 was granted by the High Court on appeal. At this stage the pleadings had been closed and the matter came on for hearing before the High Court (Lavan J.) on 13th November 2000. The trial was at hearing for five days and on 20th November 2000 the learned trial judge gave an ex tempore judgment granting a decree of divorce and a number of ancillary financial orders the general effect of which was that the husband was ordered to pay a lump sum to the wife of approximately 50% of his assets and further ordered to pay maintenance equal to approximately half his annual income. The husband appealed to this court, which allowed the appeal and ordered a retrial for the reasons set out in the judgment of McGuinness J. (now reported at [2001] 3 IR 371.)
The retrial was heard by the High Court (O’Neill J.) over seven days between 27th February 2002 and 7th March 2002. Judgment was delivered on 24th January 2003 confirming the divorce but varying the order in the first trial by ordering different financial provisions. Following a further hearing on 8th April 2003 the learned trial judge awarded the costs of both trials to the wife. The matter now comes before this court again on an appeal by the husband against both the financial provisions and the order for costs.

MARITAL HISTORY
This is set out at length in the judgment of the learned trial judge which is now reported as M.K. v J.K. (otherwise S.K.) (No. 2) [2003] 1 I.R. 326. In the light of that recital it is sufficient to summarise the position briefly in this judgment.
The parties were married on 21st September 1963 in England where they resided for some years before moving back to Ireland. There were six children of the marriage, none of whom are now dependant on the parties. Unfortunately the marriage was not a happy one and the parties separated in October 1980. Following negotiations, a deed of separation was executed on 1st January 1982 at a time when all the children were still dependant. It provided for maintenance payments for the wife and children with the payment in respect of each child to cease on that child completing second level education or reaching the age of 18 years whichever should be earlier. The agreement also contained a number of other provisions including the right for the wife and children to reside in the family home and an obligation on the husband to pay the mortgage payments in respect thereof. The agreement did not contain any provision for the payment of a lump sum by the husband to the wife.
Shortly after the separation the husband formed a relationship with one M.B. Unknown to the wife, the husband then obtained a decree of divorce from her in the Republic of Haiti, which, while it undoubtedly was invalid under Irish law, was recognised as valid under the law of the State of Massachusetts in the United States and in 1985 the husband went through a ceremony of marriage in Massachusetts with M.B.
At the time of the marriage the husband was working on the shop floor in a factory in England, but he was clearly very hard working and ambitious and pursued several educational courses in his spare time. When the parties returned to Ireland the husband obtained a senior management position and subsequently became a senior executive with an international company, which position he held at the time of the separation. Subsequent to the separation his career continued to prosper and in 1993 he was appointed vice-president of a multinational company, which involved relocating to the United States. In 1998 he became president of this company with a very substantial income and associated benefits.
In the meantime, the wife remained in the family home in Ireland and raised the six children. This she continued to do until 1994, when the youngest children went to third level education. At this stage she decided that she also would go back to further education and move to Dublin for that purpose, while renting out the family home. She now wishes to reside permanently in Dublin and for that purpose to purchase a home in Dublin.

THE PARTIES’ ASSETS
It is accepted that the wife has no substantial assets of her own and is dependent on the maintenance provided by the husband and on the rent which she obtains from the family home. The husband has accumulated substantial assets, most of which are in the United States, where he has lived and prospered for over ten years. He has now retired from his position as President of the multinational corporation but still resides in the United States where he has other commercial interests. While many of his assets are held jointly with M.B., the learned trial judge found that the value of such assets as were available to him personally at the time of the trial was approximately U.S. $1.6 million, and this figure is not disputed by the wife. The learned trial judge was quite satisfied that the parties had fully disclosed all their assets to the court. In addition to his assets in the United States, the husband is also in receipt of a pension from his former employment in Ireland and also still retains ownership jointly with M.B. of a house in a provincial town in Ireland which they purchased when they first set up home together.

THE JUDGMENT
In his judgment the learned trial judge carefully considered all the provisions of section 20 of the Family Law (Divorce) Act 1996 and commented on them individually. The provisions of the judgment insofar as they affect this appeal can be briefly stated:-
1. The husband to make a lump sum payment of €450,000 to the wife.
2. The husband to transfer the entire beneficial ownership in the family home to the wife.
3. The husband to pay maintenance to the wife in the sum of €40,000 gross per annum, and that the entire retirement benefits accruing to the husband under his Irish pension scheme should be paid to the wife in part discharge of the maintenance payments.
4. The husband to pay the wife her costs of both the High Court hearing and of the earlier High Court hearing.

THIS APPEAL
The husband is appealing to this court in relation to four matters, namely:-
1. The amount of the lump sum payment.
2. The fact that the lump sum payment is expressed in euros rather than in dollars.
3. The order for costs.
4. The amount of maintenance.

I would propose to consider the husband’s arguments in relation to each of these matters, although it is more convenient to consider the first two points together.

THE LUMP SUM
It is accepted by the husband that the overall capital value of the provisions for the applicant amounted to approximately €511,000, namely the lump sum of €450,000 and half the value of the family home. The learned trial judge treated the value of U.S. $1 as being equivalent to one euro, and on that basis the overall capital benefit to the wife amounted to approximately one third of the husband’s net assets. However, the husband points to the sharp decline in the value of the dollar from the time of the hearing to the date of the order and the further decline in its value from the date of the order to the hearing of this appeal. This is detrimental to the interests of the husband in two respects, firstly due to the fact that the payment is ordered to be made in euros and secondly due to the fact that the decline in value of the dollar has resulted in a decline in Stock Market values generally in the United States, and therefore a decline in the net capital assets of the husband. I do not accept the latter point as having any validity, as if the husband chooses to invest his assets in the Stock Market, he must be prepared to accept the fluctuations in that market.
The husband argues that the exchange rate fluctuation is a “transaction cost” on him. There is no doubt that a trial judge in assessing a lump sum payment should take into account the costs of realising the lump sum, such as capital gains tax or professional fees. However, one-off costs of realisation, which normally can be calculated fairly accurately in advance, are very different from fluctuating values which differ from day to day, and of course may vary in either direction.
In my view the real issue is not whether these are “transaction costs”, but whether the order made in favour of the wife should be expressed in dollars or in euros. This in turn comes down to the question of who should bear the risk of currency fluctuations.
The court has not been referred to any family law decisions in this jurisdiction in relation to currency matters, but the wife has referred to the decision of G.W. v R.W. [2003] 2 F.L.R. 180 where it was said:-
“The third principle is that where, as here, the children are living abroad it would usually be proper to express an award of child maintenance in the currency of the payee so that the children are not exposed to the risk of current fluctuations.”

I accept fully that it is open to a trial judge in family law matters to direct payment of either lump sum or maintenance in the currency of the residence of either party. I do not think it is possible to lay down any general rules as to how that discretion should be exercised save to say that it must be exercised so as to comply with the obligations imposed on the court by section 5 of the Family Law (Divorce) Act 1996 to ensure that the court makes:-
“Such provision as the court considers proper having regard to the circumstances exists or will be made for the spouses and any dependent members of the family.”

The reference to proper provision being made for the spouses in the plural emphasises that the court in exercising its discretion must give consideration to the interests of both the husband and the wife. In the present case the husband has clearly suffered financially through the decline in the value of the dollar between the date of the hearing and the date of this appeal, and if the lump sum is paid over now it will cost him more in real terms than was intended by the learned trial judge. However the wife has given evidence, which was accepted by the learned trial judge, that it is her intention to use all or a substantial portion of the lump sum to purchase a house in Dublin, a fact which the learned trial judge considered to be of considerable importance. In effect he was awarding her a sum which he considered would allow her to do so. The trial judge clearly was of the view that providing for the purchase of a house was a proper provision to be made for the wife and, were she to bear the risk of the currency fluctuations, the result might be that she would be unable to purchase the house.
I would agree with the principle set out in the passage quoted above from G.W. v R.W., and I think it applies equally to a provision for a spouse as to provision for children. The provision of the lump sum had a specific purpose which could only be fulfilled if the award was in the currency of the country in which it was intended to expend the monies. Providing for all payments to be made to the wife to be in the currency of the country in which she resides is in my view a perfectly proper exercise of the discretion of the learned trial judge, and further I think that the amount awarded was a suitable amount in the light of the assets available to both parties.

MAINTENANCE
The husband accepts that the sum of €40,000 per annum is in itself not an unreasonable figure, but argues that it should have been specified in dollars rather than in euro. In my view the same arguments apply to maintenance as to the lump sum, in that the money is going to be expended by the wife in Ireland, and therefore should be expressed to be in the currency of Ireland.
The husband also objects to the manner in which the use of the pension to part-fund such payments has been calculated. He complains that the value of the pension was reduced by some €6,700 per annum by reason of the making of the pension adjustment order, and that this reduction was a transaction cost which should have been taken into account in assessing the maintenance to be paid to the wife. I cannot accept this argument, as the primary purpose of the order was to make a proper provision for the wife, which in the view and discretion of the learned trial judge amounted to €40,000 per annum. That appears to me to be a proper figure having regard to the interests of both parties, and I do not think that it ought to be interfered with by reason of the reduction in the pension figures.

COSTS
After a separate hearing in relation to the question of costs, the learned trial judge awarded the costs of both trials to the wife. The husband estimates the amount of such costs to be some €880,000, a figure which the wife contests. There has been no taxation of costs to date and it is not for this court to try to estimate the extent of such costs. Sufficient to say that there is no doubt but that the costs will be very substantial, taking into account the fact that one trial lasted five days and the second trial lasted seven days. The husband’s case is that if he is to bear costs to this degree, taking into account that he also has to pay his own costs, then it will in fact eat up the balance of his assets leaving him with no capital whatever.
The costs of the retrial which is under appeal to this court clearly must be borne by the husband, particularly as this court is not varying the provisions to be made for the wife. The real issue relates to the costs of the first trial. The basis for this court’s decision in ordering a retrial were twofold. Firstly the court held that the trial judge’s discretion ought to have been exercised in accordance with the express mandatory criteria set out in section 20 of the 1996 Act and that the trial judge ought to have given reasons for the manner in which he exercised his discretion, and secondly that the trial judge erred in considering the test as between the parties to be equality and that in particular he ought not to apply the principles from the English case of White v White [2001] 1 AC 596, as such principles were based on a “clean break” solution as applied in the English courts, which principle was not applicable in this jurisdiction.
This court has traditionally been reluctant to interfere with the discretion of a trial judge in the awarding of costs, particularly as this court in the appeal from the first trial ordered that the costs of the first trial should be determined by the trial judge in the retrial.
There is no doubt that the general rule in actions for damages where a retrial has been ordered is that costs follow the event in relation to both trials, and the question of the costs of the first trial are dependent on the outcome of the retrial. The wife points to my own judgment in Mangan v Independent Newspapers [2003] 1 IR 442, which was an action for defamation, where I said at page 447:-
“If the plaintiff had to bear his own costs of the abortive trial, and certainly if he had to bear both sets of costs, then the entire award of damages to him would be eaten up in paying those costs. In this case the plaintiff was seriously libelled and the jury considered the proper compensation to him was Eur25,000. They would have been totally unaware that the money would not go to the benefit of the plaintiff, but would be used to pay costs. This would certainly seem to me to tip the balance of any discretion in the learned trial Judge in favour of the plaintiff.”

That case, of course, was somewhat unusual in that it was a civil jury action, and if the case had been heard by a judge alone, he would certainly have been aware of the possibility of costs eating into the award. However, there is a considerable logic in a general rule that where damages are awarded, the purpose of those damages is to compensate a plaintiff and not to be used in paying the costs of an abortive trial.
Here the situation is very different. These are family law proceedings in which the court must have regard to the interests of both parties. This is not a case in which damages have been awarded to the wife for some wrongdoing or injury caused to her by the husband. In family law cases there is a pool of assets, comprising those of both the husband and the wife, which assets are to be used both to make proper provision for both spouses and any dependant members of the family and to pay the costs of both parties. There is no question of either party having further assets which could be used to pay costs. In my view, therefore, the general rule does not necessarily apply in family law proceedings.
It is indeed very unfortunate that the assets available to the parties have to be reduced by the amount of the costs of the first trial. In the circumstances of family law cases the court must look at the effect of the award of costs on both parties. If the husband has to bear the costs of both parties of the first trial this is going to very considerably reduce the assets available out of which an award may be made to the wife. It is perhaps significant that the learned trial judge made a lump sum order equivalent to approximately one third of the husband’s assets as calculated at the date of the trial, without taking into account any possible liability for the costs of the first trial. If those costs had been taken into account, the lump sum figure would have been a very much higher percentage. It should be pointed out that in its decision ordering a retrial in this action, this court pointed out that the test for the division of assets was not equality but fairness.
In his decision in relation to costs the learned trial judge based the exercise of his discretion on a finding that in effect the husband was ultimately unsuccessful in the first trial in that the Supreme Court overturned the High Court decision because the trial judge did not expressly deal with the separation agreement. While this was one of the grounds for overturning the trial judge’s decision, this court also held that the trial judge was wrong in relying on the English decision of White v White in relation to an equal division of assets. The trial judge also held that the husband relied strongly on the separation agreement during the second trial in front of him, although he did put forward a proposal. There is no doubt that that proposal was considerably below the ultimate award to the wife, and the learned trial judge was probably correct in saying that the husband substantially lost the second trial.
I do not consider this to have been a good ground for awarding the costs of the first trial against him unless he was relying, as he appeared to do, on the general rule that the costs of a first trial should follow the result of a second trial.
In my view it would unfair and unjust if the husband had to bear both sets of costs of the first trial out of the assets remaining to him after the provisions to be made for the wife. In my view neither party was to blame for the outcome of the first trial. It was successfully appealed by the husband in that a retrial was ordered, and justice would be served by each party bearing his or her own costs of the first trial.

CONCLUSION
I would affirm the order of the learned High Court judge save in relation to the costs of the first aborted trial. I would vary the order of the learned High Court judge by making no order as to the costs of that trial.

MK v JPK