H v H

A return on capital which is not to be amortised is fact-specific. The assumptions used in a Duxbury calculation do not establish an industry-standard rate for other capital funds. Where the rate is disputed, the court must permit submissions and give reasons for the rate selected.

In a case accepted to involve compensation for relationship-generated disadvantage, the court must make a sufficiently clear comparison of both parties’ assets, income and needs. It must resolve material asset disputes and test whether the proposed redistribution is fair. Downsizing is not inherently inconsistent with compensation, but it must not recreate the disadvantage which compensation addresses without an adequate comparative exercise.

Following their divorce, the husband agreed to pay the wife joint-lives periodical payments. Those payments were later increased after the decision in Miller v Miller; McFarlane v McFarlane [2006] UKHL 24. When the husband sought termination on his planned retirement, Coleridge J ordered a lump sum of £400,000 under the capitalisation powers in the Matrimonial Causes Act 1973.

The judge treated the wife’s savings and part of her housing equity as a non-amortising income fund. He applied a 3.75% net return to that fund, while using the Duxbury methodology to calculate the husband’s liability. The wife appealed, alleging a calculation error and inadequate treatment of compensation and downsizing. The central issue was whether the award could safely be recalculated on appeal despite unresolved asset valuations and the need for a comparative fairness assessment.

Appeal allowed. The court granted the wife permission to appeal, set aside the lump-sum award and remitted the matter for rehearing before a different judge. Kitchin and Moore-Bick LJJ agreed with Ryder LJ.

1. There is no industry-standard rate of return for capital which is retained rather than amortised. The Duxbury assumptions may be relevant where the parties agree that they fit the facts, or where a judge so finds after proper consideration, but they do not prescribe the return for a separate capital fund. The appropriate return may depend on the investment and taxation circumstances of the particular case.

2. The judge erred by selecting a 3.75% net return which neither party had advanced, without inviting submissions or giving reasons. The error was material. It was also unexplainedly inconsistent to apply that rate to the wife’s capital while using a Duxbury calculation incorporating a 3.75% gross capital-growth assumption for the lump sum.

3. The prior agreed financial orders could not be reopened. However, the first-instance judge had accepted that this was a compensation case. In that context, the court needed to compare the parties’ assets, income and needs, and explain how disputed assets and future resources had been treated. The opaque asset findings prevented a proper scrutiny of the fairness of the proposed distribution.

4. The court did not determine the general scope of the compensation principle. It held that, where compensation is accepted as applicable, an assessment which requires the recipient to use capital by downsizing may recreate the relationship-generated disadvantage which compensation addresses. Downsizing is not prohibited, but it requires a sufficiently sophisticated comparison to avoid discriminatory redistribution.

5. The Court of Appeal could not conduct the necessary fact-finding and discretionary redistribution for itself. The application was remitted to the Family Division of the High Court, sitting as a judge of the Family Court, for retrial.

• Court of Appeal (Civil Division): By [2014] EWCA Civ 1523, the court allowed the wife’s appeal, set aside the lump-sum award and remitted the matter for rehearing before a different judge.
• Family Division of the High Court: Coleridge J ordered that the husband pay the wife a £400,000 lump sum when the joint-lives periodical-payments order ended on his retirement.
• Earlier financial orders: A deputy district judge made an agreed joint-lives periodical-payments order in 2005. Baron J approved an agreed increase in 2007.