YB v ZB (Periodical Payments Appeal) [2024] EWFC 458 (B)

This matter was heard in private. The judge gives permission for this version of the judgment to be published. In no report of, or commentary on, the proceedings or this judgment may the parties or their children or their addresses be identified. All persons, including representatives of the media and legal bloggers must ensure that the terms of this rubric are strictly observed. Failure to do so may be a contempt of court.
IN THE FAMILY COURT
[2024] EWFC 458 (B)
SITTING AT BRIGHTON
1 Edward Street
Brighton
East Sussex
BN2 0JD
Before
HIS HONOUR JUDGE FARQUHAR[Sitting in private]
Between
YBAppellantZBRespondentYB AppellantZB Respondent
Ms Sanger for Appellant instructed by Rosemary E. Hensby SolicitorsMr Miller for Respondent instructed by Brighton and Hove LawHearing Hearing date: 12 February 2024Date 25 th March 2024JUDGMENT
[1]This is an appeal by YB (“the Appellant”) in relation to the order of District Judge Melville Walker dated 28th of July 2023 which was made in final financial remedy proceedings. ZB (“the Respondent”) opposes the appeal and seeks for the original order to remain in place. I have read all of the relevant documentation in the well-prepared electronic bundle including the skeleton arguments of each party. I have also heard able oral submissions provided by Ms Sanger on behalf of the Appellant and Mr Miller on behalf of the Respondent.[2]Factual Background[3]The Appellant is aged 44 and the Respondent 56. The relationship commenced in 2007 and the parties married in 2009. They separated in September 2021. Following separation, the Appellant has remained in the former matrimonial home and the Respondent has lived in rental accommodation. There are two children of the marriage: A who is aged 18 and is a child of the Appellant from a previous relationship and B aged seven who is the child of the two parties. A splits his time between the parties and B lives with the Appellant for the majority of the time but spends alternate weekends from Friday to Monday with the Respondent as well as time during the school holidays.[4]The Respondent continued to run the business known as Company X which had generated the income to support the parties when they were together. There is an issue as to the level of that income. The Appellant, just prior to separation obtained a special licence and carries out such work around her childcare commitments and states that she earned in the region of £12,000 per annum. The Appellant considered that she could increase this to £18,000 per annum once B was older.[5]The capital assets were:a. The Former Matrimonial Home Net Equity £883,000b. The Business Company X SJE value £450,000c. Pensions Appellant £152,379d. Respondent £548,475[6]There were also significant debts to be taken into account.[7]The decision of District Judge Melville Walker[8]I have read the transcript of the detailed judgment in full and the following is simply a summary of the relevant points for the purposes of this appeal and is not an effort to summarise the judgment as a whole.[9]The main points in the judgment of District Judge Melville-Walker can be summarised as follows:a. There is no evidence that the Appellant’s earning capacity is affected by her health.b. The Respondent’s offer to pay the Appellant £150,000 for her shares in Company X was reasonable (the full figure after CGT was £204,000).c. The Appellant had no mortgage capacity and neither does the Respondent at present but that will recover in due course.d. The loans from family members for both of the parties were considered as “soft loans”.e. The housing needs of the parties could be met at a cost of somewhere between £412,500 and £500,000.f. The Appellant’s hard debts were in the sum of £58,830.g. The Respondent’s hard debts were assessed in the sum of £89,575.h. The debts would be top sliced from the proceeds of sale of the former matrimonial home leaving a net figure of £734,147.i. The Appellant to receive half the net equity amounting to £367,073 together with the £150,000 for her interest in the company giving her a total of £517,073. This will be enough capital to purchase a three-bedroom property.j. The Respondent will receive the other £367,000 from which he would have to pay £150,000 to the Appellant and some other debts. He will not be able to purchase a property immediately.k. There will be a pension share to equalise pensions at state retirement age.l. The earning capacity of the Appellant was assessed at £1,500 per month net.m. The Appellant received £150,000 for her share in the company and therefore if she shares any dividends in the future that is effectively double counting and that “obviously would not be fair”.n. The expert valued the cost of replacing the management team at £90,000 per annum but the Respondent’s income was assessed, ignoring dividends, in the sum of £100,000 per annum.o. On this basis it was assessed that the CMS calculation would be £600 per month and with Child Benefit of £104 per month the Appellant would be receiving £,2211 per month if she earned £1,500 per month net.p. The needs of the Appellant were assessed in the sum of £2,810 per month.q. There was an order for spousal periodical payments on the following basis:
“I have ignored the dividends for the purposes of double counting (wife having received a capital sum for the shares), but that does not affect the fact that they are there and the wife, judged by the standards of the husband’s own income needs schedule, has a shortfall. With the dividends he can expect he can easily afford to pay something, which suggests to me that some sort of spousal periodical payments is needed. It also feels right in terms of the fairly high level of income the husband is going to have. I do not think it can be much, and I do not think it can go on for a long period. We must bear in mind these parties separated in 2021, Wife has retrained, I have found there is no medical reason she cannot be working and Husband has effectively been paying massive amounts of maintenance for two years. So my view is a limited term Spousal Maintenance Order is appropriate. It cannot be much because, as I say, otherwise I am straying into double counting, but I do think the wife can have a bit of a boost. The figure I have determined is fair in all the circumstances is £250 per month for 12 months….. To give the wife time to adapt.”
[10]The order that was made following the hearing was in the following terms:a. Sale of the Home with the net proceeds (after debt payments) being equally divided and the Respondent to pay the Appellant £150,000 from his share.b. The Appellant shall resign from Company X and transfer her shares to the Respondentc. The Respondent to pay spousal periodical payments of £3,000 pa for 12 months commencing when the property sells without a s.28(1)(A) bar.d. Pension share as to 29.3% to the Appellant.[11]Permission to Appeal[12]The Appellant filed her Grounds of Appeal on 14th August 2023 seeking a variation in relation to the capital division and the periodical payments order. Once a transcript of the judgment was obtained, I was able to consider the papers and I granted permission to appeal on 17th October 2023 on the following grounds:a. The quantum and period of spousal periodical payments - this incorporates issues as to income and outgoings of the parties.b. Whether there should have been a discount applied to the value of Company X.c. Whether the order adequately provides for the housing needs of the Appellant.[13]The Law on Appeals[14]The test for considering an appeal is set out within FPR r 30.12 (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 procedure in the lower court.” a. wrong; or b. unjust because of a serious procedural or other irregularity in the procedure in the lower court.”
[15]The hearing itself is not a re-hearing: FPR 2010 R.30.12, the rules are as follows:
“(1) Every appeal will be limited to a review of the decision of the lower court unless .… the court considers that in the circumstances of an individual appeal it would be in the interests of justice to hold a rehearing.”
[16]The appeal court is not carrying out the same task as the first instance judge. It is not for the appeal Court to substitute its judgment for that of the original judge. In V v V 2005 2 FLR 697, Coleridge J summarised the position: "…it is right to start by recording, of course, that this is an appeal; it is not a hearing de novo in which I carry out the same task as the District Judge. It is vital for all to appreciate that.... my function in relation to this appeal is the same as in relation to any other such appeal; namely, to review the process undertaken by the District Judge to determine whether or not he fell into error in the steps which he took and in the analysis which he brought to bear. I do not start from scratch…”[17]In N v N (Financial Orders: Appellate Role)[2011] EWCA Civ 940 Thorpe LJ made the following observation at [21]: “It is very important that the limited function of the circuit judge in hearing appeals from the District Judge should be recognised and honoured. This is not a process that allows any rehearing de novo. It is not a process that allows for the admission of fresh evidence unless exceptional circumstances demand that”.[18]In Piglowska v Piglowski[1999] 2 FLR 763, HL, guidance was given to the profession in respect of the conduct of appeals. The parties do not begin the appeal with a 'clean sheet'. Lord Hoffmann, at [783H]–[784H], stated that the appellate court must always bear in mind:(i) the advantage that the trial judge has of seeing and hearing the witnesses;(ii) that there is a discretion vested in the trial court and the appellate court should resist the temptation to substitute their own discretion for that of the trial judge on a narrow textual analysis of the judgment below; and(iii) that there must be a consideration of proportionality between the amount at stake and the legal resources to be expended.[19]The Capital Division[20]The total capital of the parties, following the decision taken as to how the debts should be assessed (and ignoring pension provision) was £734,147 from the property and Company X which was valued at £450,000. This provides a total of £1,184,147. The order of District Judge Melville-Walker provided the Appellant with total capital of £517,073 or 43.6% of the total assets. The Respondent retained the business in full and would receive £217,073 from the net proceeds of the property once he had made the balancing payment of £150,000 to the Appellant. This provides him with capital of £667,073 or 56.3%. Is such a departure from equality justified?[21]The reality is that the Respondent will not see the benefit in capital terms of retaining Company X for a number of years. It is not submitted by either party that the company should be sold any time soon and consequently this will not be capital which the Respondent could utilise in order to meet his housing needs. It is also accepted that there are substantial debts which will need to be paid by the Respondent which were not taken into account by the Learned District Judge (for sound reasons) in reaching the net totals that are referred to above. It is accepted as a minimum that the Respondent will have debts to pay off of at least £30,000-£40,000. This will leave his free capital at a figure of £170,000-£180,000. The Respondent states it would be nearer £140,000.[22]The Appellant will also have some debts to pay from her capital. This will reduce her available capital from £517,000 down to approximately £490,000. It is argued on her behalf that this would be insufficient to meet her housing needs and consequently it was wrong for the District Judge to provide her with less than 50% of the value of the company. If the full figure for her interest in the company was taken then she would be left with a further £50,000 and this would be sufficient to meet her needs.[23]There has been much argument as to the decision to discount the Appellant’s share of the company by some 26%. This was dealt with within the judgment in paragraphs 26 to 29. I will not repeat but the following were included:a. “This is not cash in the bank: it is tied up in the company, and I am not particularly satisfied that anyone is going to come along and buy the company any time soon.”b. “I am satisfied that the husband is a major part of this company, and he could not easily be replaced by an employee.”c. “The company is, to a certain extent, a vehicle for the husband’s own work. ….His role and what I see as the illiquid nature of the company et cetera, leads me to be satisfied that the husband’s proposal to pay wife £150,000 for her shares, together with a full indemnity for CGT is fair.”[24]The issue as to “saleability” must by definition have been taken into account by the valuer in their report. I have read the report and I am satisfied that this was an area that was considered in the preparation of the same. It is impossible to provide a figure for a valuation unless it is considered that the value could be achieved. I do not consider that that is a good basis upon which any discount could be calculated.[25]However, there is no doubt that calculation of the valuation of this business just as with any business is an art and not a science. It is never set in stone and as is set out within the report there are many variables that could impact upon the overall figure. This is referred to within the authorities as being a risk laden asset as opposed to a copper bottomed asset. As such, it is entirely reasonable for a Court to approach such figures conservatively and for that reason I do not see that applying the discount in the overall scheme of the capital assets was wrong.[26]It is important to look at the overall position once the decision has been made. As I set out above the Appellant will have capital after payment of her debts in the region of £490,000. There was a finding made that her housing needs could be met for something between £412,000 and £500,000. It is not necessary for the Court to be more precise than that. It is difficult for anyone to argue that that was not a reasonable decision to reach. It follows that the capital split that was ordered will be sufficient to provide the Appellant with a mortgage free property albeit, one that is substantially smaller and less luxurious than the former matrimonial home. That does not mean that the decision is wrong but simply that the assets available are not sufficient to permit either of them to live in a property to a similar standard to that which was possible during the marriage.[27]The impact of the capital split upon the Respondent is that he will be left with free capital of £140,000 - £170,000. He is not in a position at present to be able to purchase a property but it is hoped that once he has paid off his debts and improved his credit rating that he will be in a position to obtain a significant mortgage. However, he is now aged 56 (57 shortly) and consequently has a limited work life and mortgage life ahead. This will severely impact upon his ability to purchase a property. He will require as much capital as can be achieved.[28]I am satisfied that the capital division provided by the order cannot be stated to be wrong. It is well within the discretion of a District Judge that was reached in this case. There was a great focus by the parties on the discount that was permitted in relation to the transfer of shares. However, the more important point to consider is the overall impact of the capital division and when that is considered I am left in no doubt that the overall outcome was a fair one. The capital order must remain.[29]Periodical Payments[30]The Appellant raises a number of issues relating to the order for periodical payments in support of the argument that the Learned Judge was wrong both in terms of the quantum and also the term of the periodical payments. I do not intend to go through in detail each of the issues that have been raised but they include:a. An incorrect assessment of the likely earning capacity of the Appellant.b. An incorrect assessment of the likely earning capacity of the Respondent.c. An erroneous approach to the reasonable monthly outgoings of the Appellant.d. Over consideration of the issue relating to double counting.e. A failure to assess whether the Appellant could adjust without undue hardship upon the order coming to an end.[31]It is important when considering these issues, just as with the issue as to capital, to look at the overall position and the impact of the order. The reality is that in the three years prior to the judgment, the company, Company X, had paid total emoluments to the two parties in total sums of between £200,000 and £228,000. They were broken down in various ways over the years between salaries and dividends together with pension contributions, car and fuel benefits and medical insurance. The expert’s report did not state that these figures would be higher or lower in subsequent years and the finding of the Judge was that there was no evidence to support a finding that the company would experience a downturn in business.[32]There was a comment within the judgment as to the impact of double counting. That is to say, because the Appellant had received a sum of £150,000 for the transfer of her shares it would be unfair for her also to receive periodical payments which would be generated from those shares. I accept that this is an issue that would have to be borne in mind, but it cannot be of central importance when considering the overall figures. The Court must consider the factors set out within the Matrimonial Causes Act 1973 as set out within the authorities.[33]The approach that any court must take in an application for spousal maintenance was set out by Mostyn J in the oft quoted dicta from SS v NS Spousal Maintenance) [2014] EWHC 4183 in which he set out the following: “(i) a spousal maintenance award was properly made where the evidence showed that choices made during the marriage had generated hard future needs on the part of the claimant. The duration of the marriage and the presence of children were pivotal factors; (ii) an award should only be made by reference to needs, save in a most exceptional case where it could be said that the sharing or compensation principle applied; (iii) where the needs in question were not causally connected to the marriage the award should generally be aimed at alleviating significant hardship; (iv) in every case, the court must consider a termination of spousal maintenance with a transition to independence as soon as it was just and reasonable. A term should be considered unless the payee would be unable to adjust without undue hardship to the ending of payments. A degree of (not undue) hardship in making the transition to independence was acceptable; (v) if the choice between an extendable term and a joint lives order was finely balanced the statutory steer should militate in favour of the former; (vi) the marital standard of living was relevant to the quantum of spousal maintenance but was not decisive. That standard should be carefully weighed against the desired objective of eventual independence; (vii) the essential task of the judge was not merely to examine the individual items in the claimant’s income budget but also to stand back and to look at the global total and to ask if it represented a fair proportion of the respondent’s available income that should go to the support of the claimant; (viii) where the respondent’s income comprised a base salary and a discretionary bonus the claimant’s award may be equivalently partitioned, with needs of strict necessity being met from the base salary and additional, discretionary, items being met from the bonus on a capped percentage basis; (ix) there was no criterion of exceptionality on an application to extend a term order.” that choices made during the marriage had generated hard future needs on the part of the claimant. The duration of the marriage and the presence of children were pivotal exceptional case where it could be said that the sharing or compensation principle

bonus the claimant’s award may be equivalently partitioned, with needs of strict

[34]Further the words of section 25 A Matrimonial Causes Act 1973 must be at the forefront of any judge’s mind in considering these issues. This states:a. “it shall be the duty of the court to consider whether it would be appropriate so to exercise those powers that the financial obligations of each party towards the other will be terminated as soon after the grant of the decree as the court considers just and reasonable.” Andb. “Where the court decides in such a case to make a periodical payments or secured periodical payments order in favour of a party to the marriage, the court shall in particular consider whether it would be appropriate to require those payments to be made or secured only for such term as would in the opinion of the court be sufficient to enable a party in whose favour the order is made to adjust without undue hardship to the termination of his or her financial dependence on the other party.”[35]I am satisfied that the judge fell into error in making the order that he did. The decision was made to base the Respondent’s future income on the cost of a replacement management team in the sum of £90,000 per annum as set out within the valuation report. Then he added on a further £10,000 but ignored any dividends and worked upon the basis of an income of £100,000 per annum. I understand the legal/logistic approach that was taken but it ignores the reality. It was stated in paragraph 58 of the judgment that “equally, I have got to recognise the realistic situation as the husband can decide whether he has salary or dividends in any combination really that he wants, as he will be 100% shareholder of this company. Commonly people adjust this to make it as tax efficient as possible”. It is difficult to understand in what way this reality was recognised. I am satisfied that the earning capacity of the Respondent is significantly greater than that attributed to him within the judgment, bearing in mind the total emoluments that had been achieved in the previous 3 years.[36]There is also criticism that there was no basis upon which the judge could have reached the decision that the Appellant could earn £1,500 per month net. This would require an income of at least £22,000 per annum gross. The evidence of the Appellant was that she was earning between £12 and £13 per hour in her current work and in order to achieve the income that was attributed to her would require her to work at least 40 hours per week, and as she is the main carer for the young child of the parties it is difficult to see how that would be achieved. I am satisfied that the evidential basis for a finding of £1,500 per month net was not present although the Appellant accepts that she could receive at least £1,000 per month and there is certainly room for growth beyond that figure. It follows that I am satisfied that the total figure of £1,500 is only slightly higher than should be attributed to the Appellant. I am satisfied that a figure of £1,250 is more realistic.[37]There were the ‘usual arguments’ in relation to the outgoings of the parties. The Learned District Judge did not delve into each and every aspect of the outgoings claimed by each party. He cannot be criticised in that regard. He took a holistic overview of the budgets and came to a figure of £2,810 per month for the Appellant’s needs. It is argued that this is too low, but I am satisfied that the Judge approached this issue proportionately and appropriately, reaching a reasonable conclusion.[38]Having reached the conclusion that the Appellant requires £2,810 per month the Judge considered her income to be £1,500 per month from salary, Child Benefit of £104 and child maintenance of £607. These total £2,211. As I have stated I do not accept the figure for income as being correct and should be reduced to one of £1,250 per month. The figure for Child Maintenance is also a movable feast. There are ongoing Children Act proceedings and if it is decided that B should spend more time with the Respondent then there will be a corresponding reduction in those payments. It is accepted that the CMS finds it difficult in general to accurately assess the real income of someone in the Respondent’s position who derives their income from a company that they fully control. Further I note within the Respondent’s section 25 statement that he considered £550 per month to be the appropriate figure for child maintenance. There is no certainty as to what that figure may be in due course.[39]On the judge’s finding that the Appellant’s total income would be £2,211 and her reasonable needs were assessed at £2,810 it is difficult to understand how the sum of £250 per month was reached. In considering this matter at paragraph 63 of the judgment it was stated:
“my view is a limited term Spousal Maintenance Order is appropriate. It cannot be much because, as I say, otherwise I am straying into double counting, but I do think the wife can have a bit of a boost. The figure I have determined is fair in all the circumstances is £250 per month.”
. It is not explained how £250 per month would mean that the Appellant could meet her reasonable needs assessed in the sum of £2,810.[40]The justification appears to be the risk of double counting. As stated above, I consider double counting to be a factor to be taken into account, but it cannot possibly trump the needs of the Appellant. There is a hard need for the Appellant to receive the sum of £2,810 per month. On considering that her reasonable earning capacity is £1,250 per month together with child benefit of £104 per month then even if the figure for child maintenance is £600 per month then there is still a shortfall of £856 per month. It may well be that the child maintenance is a lower figure than that which is stated, indeed the Respondent suggested the figure of £550 per month.[41]In considering the ability of the Respondent to pay a greater sum, I am entirely satisfied that he can do so. As was set out within the expert’s report he can make his own decisions as to how any sums paid by the company are made. He can do this in the most tax efficient manner appropriate. If he is only receiving a total figure of £150,000 per annum which is significantly lower than has been achieved over the last three years, then he still has ability to pay a substantial order for periodical payments. As was set out within the original order these would only commence once the property had been sold which would in due course substantially reduce his other outgoings.[42]I am satisfied that the order made for £250 per month is wrong as, even on the figures set out by District Judge Melville-Walker, such a sum would not meet the minimum needs of the Appellant. This is one of those cases in which having decided that the District Judge was wrong this Court is in a position to exercise the judicial discretion afresh. The error is sufficiently discrete and there is sufficient information/evidence before me to be able to re-consider the position. It would be wholly disproportionate to order a re-hearing on this issue.[43]The appropriate figure for spousal maintenance is one of £900 per month. This is slightly higher than the minimum of £856 set out above but that is partly due to the fact that the figure for child maintenance may vary in due course. This will enable the Appellant to meet her needs (just) but is at a level which the Respondent can certainly meet from the overall income that he will receive. Indeed, it is affordable out of the income that the District Judge assessed the Respondent would receive. Further, there is no double counting as this sum is affordable out of the share of the business income that the Respondent always had prior to all the shares being transferred into his name.[44]I am also satisfied that the term period of 12 months was wrong. There does not seem to have been any consideration as to how the Appellant could adjust without undue hardship to the termination of the periodical payments within such a short period. The only statement within the judgment dealing with the term for the periodical payments order is the final line which states:
“But basically the spousal maintenance is £250 for 12 months to give the wife time to adapt.”
On the basis that even on the findings made by the District Judge as to the Appellant’s income and with the payment that was ordered there would be a significant monthly shortfall from her needs it is difficult to see how that would not cause undue hardship.[45]Further, there is no evidence to suggest that the earning capacity of the Appellant will increase in 12 months’ time. At that stage the youngest child of the family will still only be aged eight and that would not provide the Appellant with any greater opportunity to work than is presently available. It is possible that once B is at senior school that the Appellant may be able to increase her hours but, even then, this will not equate to being able to meet her needs. The Court must strive to achieve independence as soon as it is just and reasonable to do so but this can only occur once the receiving party is in a financial position to meet their needs, as they have been assessed by the Court.[46]The order that will be made is that the Respondent is to pay or cause to be paid to the Appellant the sum of £900 per month until the youngest child is aged 12 and thereafter it will be reduced to £500 per month until that child is aged 18. I am conscious that by that stage the Respondent will be aged 66 and no doubt contemplating retirement. As a result, there will be a s.28 (1) (A) bar attached to the order.[47]The parties are to agree the order to put this decision into effect and provide the same to the court by 8th April 2024 to allow for the Easter period. If either party wishes to apply for costs, they should do so by written submissions limited to 3 pages which are to be submitted by 8th April 2024. If such an application is made the other party may file their own written submissions in reply, also limited to 3 pages, by 15 April 2024. HHJ Farquhar 25th March 2024