SA v PA

This judgment was handed down in private on 21 February 2014. It consists of 88 paragraphs and has been signed and dated by the judge. The judge gives leave for it to be reported in this anonymised form as SA v PA (Pre-marital agreement: Compensation). The judgment is being distributed on the strict understanding that in any report no person other than the advocates or the solicitors instructing them (and other persons identified by name in the judgment itself) may be identified by his or her true name or actual location and that in particular the anonymity of the children must be strictly preserved. Neutral Citation Number: [2014] EWHC 392 (Fam) IN THE HIGH COURT OF JUSTICE FAMILY DIVISION Royal Courts of Justice Strand, London, WC2A 2LL Date: 21/02/2014 Applicant Respondent Before : MR JUSTICE MOSTYN - - - - - - - - - - - - - - - - - - - - - Between : SA - and - PA - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Patrick Chamberlayne QC (instructed by Paris Smith) for the Applicant Michele O’Leary (instructed by David Clark & Co) for the Respondent Hearing dates: 17 – 21 February 2014 - - - - - - - - - - - - - - - - - - - - - Judgment Mr Justice Mostyn : 1. 2. 3. 4. 5. 6. 7. This ought to have been a simple case to resolve. It was an 18 year marriage. The husband is Dutch and is now aged 50 and the wife is English and is aged 48. They have four children aged 19, 17, 15 and 13. The present divisible non-pension assets are, as I will explain below, about £3.8m of which the net value of the matrimonial home is £2.2m. The husband is a successful solicitor in a magic circle firm earning net £600,000 annually. I consider that he will have to retire in 5 years’ time. The net value I will attribute to his pension arrangements is £1.14m. The reason why the case was not settled at the FDR, or tried swiftly and economically by a District Judge, but rather fought out over 3 days before me, is because it has been bedevilled by two legal complications. First, the husband lays considerable emphasis on a Dutch pre-marital agreement signed the day before the marriage (which took place in Amsterdam). Second, the wife claims that her periodical payments award should be significantly enhanced by reference to the principle of compensation as explained by the House of Lords in McFarlane v McFarlane [2006] UKHL 24 [2006] 2 AC 618. These two factors have driven up the costs. The husband has incurred costs of £163,880 and the wife of £203,430, a total of £367,310, or just under 10% of the divisible non-pension assets. The wife proposes that she should be awarded the matrimonial home outright, a lump sum of £110,000 to pay her debts, a joint lives periodical payments order of £200,000, together with child support on the basis that the husband pays school fees and university costs. As a quid pro quo for the undeniable fact that the husband is entitled to argue that some of the assets are non-matrimonial property she says that she will not seek a share of the husband’s pensions, and would agree that the final order should contain a recital recording an agreement that those pensions should be ring- fenced and ignored if (or more likely when) periodical payments came to be varied. The husband, laying great weight on the Dutch pre-marital agreement, proposes that the matrimonial home should be subjected to a Mesher order whereby it is sold in 5 years time and the proceeds divided equally. He proposes a lump sum of £250,000 to clear the wife’s debts and to give her a significant buffer. He proposes periodical payments for the wife of £150,000 annually for five years when the award would be extinguished. The term of maintenance would be non-extendable. In addition he offers child support, school fees and university costs. Neither of these proposals is reasonable. I will first address the legal principles referable to the two complicating factors. Pre-marital agreements 8. Definitive guidance concerning the treatment to be afforded to marital (including pre- marital) agreements has given by the Supreme Court in the well known case of Granatino v Radmacher [2011] 1 AC 534. I myself attempted to summarise the principles in my decisions of Kremen v Agrest No. 11 [2012] EWHC 45 (Fam) [2012] 2 FLR 414 and B v S [2012] EWHC 265 (Fam) [2012] 2 FLR 5012. 9. 10. The Supreme Court emphasised that it was a complete irrelevance whether or not the marital agreement had the status of a contract: “[it] does not matter anyway. It is a red herring” (para 63). The test propounded by the Supreme Court in para 75 was to apply irrespective of whether the agreement in question, did, or did not, have contractual status, and was as follows:- The court should give effect to a nuptial agreement that is freely entered into by each party with a full appreciation of its implications unless in the circumstances prevailing it would not be fair to hold the parties to their agreement. 11. In Kremen v Agrest (No.11) I tried to elucidate this seemingly simple test by reference to the many paragraphs of explanation and reasoning in the judgment of Lord Phillips PSC. At para 72 I stated:- In Granatino v Radmacher [2011] AC 534 the Supreme Court gave definitive guidance as to the treatment of a nuptial contract in proceedings for ancillary relief following a domestic divorce. The guidance contained in the judgment of the majority delivered by Lord Phillips of Worth Maltravers PSC can be summarised as follows: i) The court should give effect to a nuptial agreement which is freely entered into by each party with a full appreciation of its implications unless in the circumstances prevailing it would not be fair to hold the parties to their agreement (para 75). ii) In determining whether an agreement has been "freely entered into by each party with a full appreciation of its implications" there is no absolute black and white rule for full disclosure or independent legal advice. Rather, the question is whether in the individual case there is a material lack of disclosure, information or advice. Each party must have all the information that is material to his or her decision that the agreement should govern the financial consequences of the marriage coming to an end. An absolute rule would only be necessary if the agreement were to be contractually binding, but this is not the case as there is a safety-net of (un)fairness (para 69). iii) The presence of any of the standard vitiating factors of duress, fraud or misrepresentation will negate any effect the agreement might otherwise have (para 71). Further, unconscionable conduct such as undue pressure (falling short of duress) will likely eliminate the weight to be attached to the agreement (ibid). Other unworthy conduct, such as exploitation of a dominant position to secure an unfair advantage, will reduce or eliminate the weight to be attached to the agreement (ibid). The court may take into account a party's emotional state, and what pressures he or she was under to agree, as well as their age and maturity, and whether either or both had been married or been in long-term relationships before (para 72). The court may take into account foreign elements to determine whether or not the parties intended their agreement to be effective (para 74). iv) In determining whether "in the circumstances prevailing it would not be fair to hold the parties to their agreement": a) The agreement cannot be allowed to prejudice the reasonable requirements of any children of the family (para 77). b) Respect should be accorded to the decision of a married couple as to the manner in which their financial affairs should be regulated particularly where the agreement addresses existing circumstances and not merely the contingencies of an uncertain future (para 78). This is likely to be so where the agreement seeks to protect pre-marital property (para 79). By contrast it is less likely to be so where the agreement leaves in the hands of one spouse rather than the other the most part of a fortune which each spouse has played an equal role in their different ways in creating (para 80). If the devotion of one partner to looking after the family and the home has left the other free to accumulate wealth, it is likely to be unfair to hold the parties to an agreement that entitles the latter to retain all that he or she has earned (para 81). c) Is likely to be unfair to hold the parties to an agreement which leaves one spouse in a predicament of real need, while the other enjoys a sufficiency or more (para 81). However, need may be interpreted as being that minimum amount required to keep a spouse from destitution. For example, if the claimant spouse had been incapacitated in the course of the marriage, so that he or she was incapable of earning a living, this might well justify, in the interests of fairness, not holding him or her to the full rigours of the ante-nuptial agreement (para 119). 12. In B v S at para 20 I stated:- In my judgment the requirement of "a full appreciation of its implications" does not carry with it a requirement to have received specific advice as to the operation of English law on the agreement in question. Otherwise every agreement made at a time when England and Wales was not on the horizon would be discarded. But in order to have influence here it must mean more than having a mere understanding that the agreement would just govern in the country in which it was made the distribution of property in the event of death, bankruptcy or divorce. It must surely mean that the parties intended the agreement to have effect wherever they might be divorced and most particularly were they to be divorced in a jurisdiction that operated a system of discretionary equitable distribution. I have respectfully suggested in Kremen v Agrest No. 11 that usually the parties will need to have received legal advice to this effect, and will usually need to have made mutual disclosure. 13. In AH v PH [2013] EWHC 3873 (Fam) Moor J specifically approved this at para 53 where he stated:- It cannot be a requirement to have received specific advice as to the operation of English law on the agreement in question, otherwise Mr Radmacher (sic) would not have been held to his agreement. Fortunately, I do not consider that I need to resolve the issue further as I agree with Mostyn J in B v S at [20] where he says that, to have effect, the parties must have intended the agreement to apply wherever they might be divorced and, in particular, if they were divorced in a regime that operated a system of discretionary equitable distribution. It undoubtedly follows that it is wise for the other party's advisor to insert a clause dealing with this in the final agreement. 14. Finally, it is clear that a marital agreement does not have to deal with all aspects of the parties’ resources in order to be presumptively binding over the assets or resources which it addresses. Thus it might (as is the case with the agreement here) address how existing capital might be shared, but leave the question of maintenance entirely at large; alternatively it might address only some, but not all of the parties’ capital assets and how those should be shared. In L v C [2007] 3 HKLRD 819 the Hong Kong Court of Appeal was concerned with two agreements made after separation which dealt with some of the parties’ assets. Stock JA stated:- 53. This particular case is unusual on its facts in that the assets covered by the two agreements were part only of the matrimonial assets. The question that arises is whether the Edgar principles nonetheless hold good. 54. I see no reason why those principles should not in such circumstances apply. The effect of that application will depend on the nature of the particular agreement. So, for example, if the agreement is one that deals merely with allocation of certain assets with no intention to treat them for all future purposes as of equal value then, unless there be shown good and substantial reason to do otherwise, the court will respect that allocation, without prejudice however to a valuation of those assets as part of the valuation of all matrimonial assets to enable a just disposal of the balance. It may well be that the exigencies of family circumstances at the time of separation will dictate the allocation of, say, two assets, one to each party, so that each may be utilised unencumbered by the interference of the other party; yet that is not necessarily an agreement that when the content of the matrimonial pot comes finally to be divided, the values of the assets thus allocated are to be ignored. Where however the agreement amounts to one which the court can safely treat as intended by the parties not merely to be a convenient allocation of certain assets at a given time, but also an isolation for future purposes of those assets from the matrimonial pool, then the Edgar principles will apply to that extent. It would appear that the parties accepted that position at trial and the judge proceeded on that basis. Compensation 15. It is certainly the case that in McFarlane the House of Lords promulgated the theory of “compensation” as a strand or principle to aid the exercise of the court’s discretionary powers to achieve a fair result. Thus in para 13 Lord Nicholls stated:- Another strand, recognised more explicitly now than formerly, is compensation. This is aimed at redressing any significant prospective economic disparity between the parties arising from the way they conducted their marriage. For instance, the parties may have arranged their affairs in a way which has greatly advantaged the husband in terms of his earning capacity but left the wife severely handicapped so far as her own earning capacity is concerned. Then the wife suffers a double loss: a diminution in her earning capacity and the loss of a share in her husband's enhanced income. This is often the case. Although less marked than in the past, women may still suffer a disproportionate financial loss on the breakdown of a marriage because of their traditional role as home-maker and child-carer. 16. And at para 32:- In particular, I consider a periodical payments order may be made for the purpose of affording compensation to the other party as well as meeting financial needs. It would be extraordinary if this were not so. If one party's earning capacity has been advantaged at the expense of the other party during the marriage it would be extraordinary if, where necessary, the court could not order the advantaged party to pay compensation to the other out of his enhanced earnings when he receives them. It would be most unfair if absence of capital assets were regarded as cancelling his obligation to pay compensation in respect of a continuing economic advantage he has obtained from the marriage. 17. And at para 95:- The Court of Appeal, however, seems not to have had the distinction between needs and compensation clearly in mind when considering the way ahead. The court appears to have treated the surplus of income over expenditure as simply a means whereby the wife could accumulate a capital reserve. But that would be to mistake the purpose of this part of the district judge's award. 18. And at para 99:- But the wife's claim for compensation stands differently. Her compensation claim is not needs-related; it is loss-related. So the compensation element of her claim is not directly affected by the use she makes of her resources. 19. Lord Hope stated at para 116:- They decided that she should sacrifice her own high earning career in the interests of the family while her husband developed his ability to generate income. 20. Lady Hale stated at para 138:- A further source of need may be the way in which the parties chose to run their life together. Even dual career families are difficult to manage with completely equal opportunity for both. Compromises often have to be made by one so that the other can get ahead. All couples throughout their lives together have to make choices about who will do what, sometimes forced upon them by circumstances such as redundancy or low pay, sometimes freely made in the interests of them both. The needs generated by such choices are a perfectly sound rationale for adjusting the parties' respective resources in compensation. 21. And at para 140:- But the economic disadvantage generated by the relationship may go beyond need, however generously interpreted. The best example is a wife, like Mrs McFarlane, who has given up what would very probably have been a lucrative and successful career. If the other party, who has been the beneficiary of the choices made during the marriage, is a high earner with a substantial surplus over what is required to meet both parties' needs, then a premium above needs can reflect that relationship-generated disadvantage. 22. And at para 153:- Take, for example, a genuine dual career family where each party has worked throughout the marriage and certain assets have been pooled for the benefit of the family but others have not. There may be no relationship-generated needs or other disadvantages for which compensation is warranted. 23. And at para 154:- In McFarlane, there has been an equal division of property, but this largely consisted of homes which can be characterised as family assets. This was not enough to provide for needs or compensate for disadvantage. The main family asset is the husband's very substantial earning power, generated over a lengthy marriage in which the couple deliberately chose that the wife should devote herself to home and family and the husband to work and career. The wife is undoubtedly entitled to generous income provision for herself and for the sake of their children, including sums which will enable her to provide for her own old age and insure the husband's life. She is also entitled to a share in the very large surplus, on the principles both of sharing the fruits of the matrimonial partnership and of compensation for the comparable position which she might have been in had she not compromised her own career for the sake of them all. The fact that she might have wanted to do this is neither here nor there. Most breadwinners want to go on breadwinning. The fact that they enjoy their work does not disentitle them to a proper share in the fruits of their labours. 24. 25. I confess that I find the theory to be extremely problematic and challenging both conceptually and legally. It would seem that I am not alone. It is worth reminding oneself of the exceptional facts in McFarlane as expressed in the agreed statement of facts before the House (which is quoted in the later variation decision of Charles J in the same case - see [2009] 2 FLR 1322):- When they began to cohabit in 1982, the Appellant [Mrs McFarlane] was about to commence work as a solicitor's articled clerk working at Clifford Turner, a well-known City firm of solicitors. The Respondent [Mr McFarlane] was a trainee chartered accountant working for Touche Ross. Prior to their marriage, the parties purchased the first of four homes that they bought together during the course of their relationship and marriage. By about the time that they married in 1984, they had both qualified in their respective professions. In 1985, the Appellant moved to 3i, a large venture capital company, which provided the parties with the benefit of a reduced rate mortgage. After the birth of J she returned to work for 3i. In 1990, the Respondent became a partner in Touche Ross. Until this time, the Appellant earned as much as and, for a period, more than the Respondent. In 1991, just before S's birth, the parties agreed that the Appellant should give up work. They agreed to concentrate on the husband's career in order to provide the funding of the family's lifestyle. The Appellant has not since returned to work as a solicitor, but has on two occasions begun to re-train. … The District Judge imposed a joint lives order of £250,000 per annum. This was reduced to £180,000 per annum by Bennett J. on appeal. The Court of 26. 27. 28. Appeal restored the quantum of £250,000 but imposed a term of five years. So it can be seen that for the first 8 years of the 18 years relationship Mrs McFarlane earned as much as and, for a period, more than her husband. That was a highly significant track-record from which one could probably draw safe conclusions. Mr McFarlane had gone on to earn annually by the time of the separation nearly £1m gross or £600,000 net. Let me try to explain my difficulties. First, I put aside the American usage of compensation as a synonym for remuneration or earnings. Over here compensation almost invariably denotes a payment made by a wrongdoer to a victim to make amends for harm caused by the wrongdoer to the victim. The language of the House of Lords appears to reflect this concept in that they speak of “handicap” or “sacrifice” of “suffering a loss” or “economic disadvantage”. But in any usual situation where compensation is claimed the victim is not an active enthusiastic voluntary participant in the events that give rise to the claim. True, in a negligence claim contributory negligence can reduce the damages, but even there it can hardly be said that the victim was an active volunteer. Lady Hale recognises this strange aspect of this type of compensation claim in para 138 where she said “all couples throughout their lives together have to make choices about who will do what … sometimes freely made in the interests of them both. The needs generated by such choices are a perfectly sound rationale for adjusting the parties' respective resources in compensation” and in para 154 where she said “the fact that she might have wanted to do this is neither here nor there”. I entirely accept that such freely made choices may supply a “sound rationale” for a needs-based periodical payments award but I do not understand how it supplies a rationale for a periodical payments award that supplies a “premium” above need (see para 140) or for an “element of her claim not directly affected by the use she makes of her resources” (see para 99). I would have thought the free choice made by the claimant to give up work was the dominant consideration. While it was true that her decision was agreed with Mr McFarlane, the reason Mrs McFarlane gave up work was because she decided to give up work. No-one forced her to give up work. She was not browbeaten by Mr McFarlane to give up work. Her motives for giving up work seem to me to be irrelevant. Perhaps she was driven by an intense maternal instinct. Perhaps she was bored with her high-flying job and saw a life being supported by Mr McFarlane bringing up her children as more comfortable. Perhaps she wanted to do something else. At the end of the day, however, what cannot be disputed is that the reason Mrs McFarlane gave up work was because she, an intelligent liberated autonomous adult woman, decided to give up work. I cannot see how that can be characterised as a loss “suffered” by her entitling her to an award in excess of her reasonable needs. 29. Second, determining a compensation claim of this nature requires the court to make extraordinary counter-factual findings. The findings by the House of Lords about Mrs McFarlane’s “loss” were seemingly not consistent. According to Lord Nicholls at para 92:- …the career foregone by the wife was a professional career as successful and highly-paid as the husband's. This is not a case where the wife's future success was a matter for speculation. Speculation of this character is seldom helpful. Here the wife had a proven track record when the parties agreed she should give up her job. In stark contrast at para 154 Lady Hale was much more circumspect stating that Mrs McFarlane was entitled to “compensation for the comparable position which she might have been in had she not compromised her own career for the sake of them all” (my emphasis). 30. It is not clear on what counter-factual basis the House of Lords reached its conclusions. Did it ask itself what Mrs McFarlane’s position would have been had she never met Mr McFarlane? Or what her position would have been had they decided not to have children? Or if they had decided to have children but decided to employ nannies? Whichever basis is adopted it involves making an award in hard money based on a guess founded on a vision that events that did happen, did not happen, and events that did not happen, did. This is extremely difficult and dangerous territory which is not based on any kind of hard evidence but usually on hunch, guesswork and speculation. It has been said that resolution of personal injury cases require the faculties of a prophet, but at least the prophetic exercise there looks, unavoidably, into the future rather than in this type of case where the exercise requires a complete re- writing of history. 31. Thirdly, the exercise is highly arbitrary. In the variation proceedings in McFarlane v McFarlane [2009] 2 FLR 1322 Charles J, in my view wisely and correctly, observed at para 121:- In another case this could raise the problem as to whether, and if so, why after a long marriage a wife who reluctantly, or willingly, gave up a career that she loved, but which was never going to be well remunerated and to which she realistically cannot return, should receive less than she would have done if the career she had so given up was one in which she would have been likely to have received substantial remuneration. Whatever the income or earning capacity that is given up, the choice and the support given to the family, and the husband's career, success and earning capacity would effectively be the same. Also if a wife can return to being a high earner could reduce her award below that of a wife who does not. 32. Fourthly, experience has shown that it is extremely difficult to compute rationally, let alone predictably, a compensation “premium” or for an “element of the claim not directly affected by the use the claimant makes of her resources”. In RP v RP [2006] EWHC 3409 (Fam) [2007] 1 FLR 2105 Coleridge J stated:- 61. I begin to detect creeping in from some quarters a new methodology or approach akin to a damages claim, in order to bring some greater science to these applications and in the ceaseless craving for certainty which constantly inhabits the fertile mind of the specialist advocate. Mr. Dyer tells me that he has already been engaged in a case where it is suggested that expert evidence should be called to establish the value of the wife's loss of earnings/earning capacity caused by her marriage! 62. In my judgement, any such approach is totally misconceived and likely to lead to double counting (as Baroness Hale warned). It is a blind alley at the mouth of which a "no entry" sign should now be firmly planted. 33. In VB v JP [2008] EWHC 112 (Fam) [2008] 1 FLR 742 Sir Mark Potter P stated at para 52:- On the basis (as the judge recognised elsewhere) that there are indeed implicit in the provisions of s. 25 the strands or rationales adumbrated by the House of Lords, there is little to disagree with in the passages quoted in the context of that case. I share and endorse the concerns expressed. The judge was dealing with a case where it was accepted there were before the court just sufficient capital assets to achieve a clean break in a situation where the wife, because her own earning capacity remained essentially intact, would not be left in a position of continuing reliance for her needs upon the husband's future earning capacity. Thus, on the facts, the case for compensation, whether viewed simply as a matter of fairness, or as itself adding some "premium" element, was weak if not non-existent. Further, I would endorse the warning sounded by the judge against the introduction of an approach which seeks to separate out and quantify the element of compensation, rather than treating it as one of the strands in the overall requirement of fairness in the assessment of the parties' joint contribution to the marriage, where the wife, as a result of joint marital decision has sacrificed her own earning capacity in the interests of the bringing up the family. Attempts under the rubric of Compensation to isolate and quantify the level of income or earning capacity sacrificed by a wife years after the event for the purpose of calculating a premium element on the award, constitutes a search for precision which is to be discouraged both on the grounds of policy and practicality, and which goes beyond what is required or generally appropriate in the exercise required of the court under s.25. 34. Finally, in the variation proceedings in McFarlane Charles J was at pains to say that in that case the compensation principle was “in play” (see paras 121 and 122). However, he did not reflect that principle beyond assessing Mrs McFarlane’s future needs at a generous level. Indeed it is arguable that he did not reflect it at all. There is an irony here. The ultimate award to Mrs McFarlane was no more than a conventional needs based exercise. I will return to this decision later. 35. It is hard to identify any case where compensation has been separately reflected as a premium or additional element. 36. Obviously I am bound by the decision of the House of Lords. However, in the light of the later authorities, I think that the principles concerning a compensation claim can properly be expressed as follows:- i) ii) iii) iv) It will only be in a very rare and exceptional case where the principle will be capable of being successfully invoked. Such a case will be one where the court can say without any speculation, i.e. with almost near certainty, that the claimant gave up a very high earning career which had it not been foregone would have led to earnings at least equivalent to that presently enjoyed by the respondent. Such a high earning career will have been practised by the claimant over an appreciable period during the marriage. Proof of this track-record is key. Once these findings have been made compensation will be reflected by fixing the periodical payments award (or the multiplicand if this aspect is being capitalised by Duxbury) towards the top end of the discretionary bracket applicable for a needs assessment on the facts of the case. Compensation ought not be reflected by a premium or additional element on top of the needs based award. 37. Having regard to what I said in B v S at paras 73-79 it will be apparent that it is my firm belief that save in highly exceptional cases an award for periodical payments should be assessed by reference to the principle of need alone. 38. I now revert to the facts of this case. The pre-marital agreement 39. 40. As I have said above, the husband is aged 50 and is Dutch and the wife is aged 48 and is English. They are both highly intelligent people. The wife had performed excellently at University and obtained articles at a magic circle firm. Later she moved to a leading US-based international firm. The husband had qualified as a lawyer and had obtained a position at a leading US firm. They met and began a relationship in 1992 when they were both working in Brussels. In 1993 they began to cohabit. The wife became pregnant in early 1994, by which time they were already engaged to be married. The marriage was fixed to take place in Amsterdam in the English Church there on Saturday, 21 May 1994, to be preceded by a civil ceremony the previous day, Friday, 20 May 1994 in the Amsterdam town hall. About 100 guests were invited to the religious service and there was to be a big reception afterwards in the husband's parents’ home in Aerdenhout, near Haarlem. On 11 May 1994 a file was opened by a notary with a firm in The Hague of which firm the husband’s father had been a member, although not as a notary. A notary is a quasi-judicial officer throughout the civil law systems. The notary has since died. The file does not show at whose behest the file was opened although it seems obvious that it was at the initiative of the husband and/or his father. The cover of the file is annotated “13 May 1994 at 16:30 hours”. Again, there is no positive evidence what this means although it seems likely (as Mr C (who succeeded the original notary on 1 41. 42. 43. 44. 45. 46. 47. June 1999) speculates) that this was an appointment for that time with the husband, the wife, or both. The file shows that on Monday, 16 May 1994 a first draft of the agreement was prepared as well as some explanatory notes. This draft has the number 341693jb.1.1. There is a copy of a letter in the file with that date addressed to the couple’s home address in Brussels. There is nothing in the file to suggest that it was sent by post, and given the tight timeframe is seems likely that it was sent instead by fax (the notary’s firm did not use email back then), and there is a fax transmission sheet showing that it, the explanatory note and the first draft of the agreement (in all 11 pages) were sent by fax to the husband’s firm on 16 May 1994 at 17:19. The letter is addressed to both the husband and the wife and refers to a meeting on 13 May 1994. The file shows that the husband responded on 18 May 1994 at 11:00 seeking some amendments. Mr C assumes that this was by telephone, and this seems overwhelmingly likely. This response by the husband led to a second draft of the agreement being faxed to his work fax number the same day at 18 May 1994 at 12:24. This draft has the number 341693jb.1.2. One of the amendments changed the officiating notary from the original notary to Mr B. This second draft led to a further (unrecorded) response from (it is assumed) the husband which in turn led to a third draft being faxed to his work fax number on Thursday, 19 May 1994 at 12:39. This draft has the number 341693jb.1.3 I have a copy of the final executed version which bears the signatures of both parties and Mr B. This bears the number of the third draft: 341693jb.1.3. It says both in the preamble and in its final clause that it was executed in The Hague. It contains two manuscript amendments. One corrects (in the notary’s handwriting) a typographical error, and is initialled by all the signatories, the other adds (in the handwriting of the notary) the words “onder andere” (which mean “among other things”) to the first declaration on the final page. This amendment too is initialled by all the signatories. In an email Mr C says that the execution “apparently” took place at around 17:00 on Thursday, 19 May 1994. In an email Mr B says that it was done in The Hague; that in 1994 it was forbidden for notaries to execute deeds outside their own court area; and that had it been executed other than in The Hague he would have changed the final clause. The reason I am setting all this out in such detail is that the wife denies attending before Mr B in The Hague on 19 May 1994. She says that she first saw it in the garden of the husband’s parents’ house in Aerdenhout on that day. She says she never saw the explanatory notes. She says that she signed it in the garden, and that the notary was not present. If this is so then it must follow that the notary has committed a serious wrong. In a steel box the wife had kept a copy not only of the signed agreement but of a draft extensively annotated by her. This is the third draft numbered 341693jb.1.3. Therefore the wife could only have got that draft some time after it had been faxed to the husband’s work address on Thursday, 19 May 1994 at 12:39. 48. 49. 50. 51. 52. 53. 54. 55. 56. 57. The annotations are almost all in English and show that the wife had carefully gone through the document writing in translations of words so that she could understand it fully. However on the first of the declarations on the final page she has written in the Dutch words “onder andere”. Therefore it is obvious that this addition was at her behest. Further it seems inconceivable that the notary would have witnessed or executed a deed which says that the wife was there in The Hague before him if she was not. Also, the wife’s case simply does not fit with the amendments in the notary’s handwriting initialled by all signatories. I reject the wife’s evidence that she did not attend at the offices of the notary’s firm in The Hague and there executed the agreement before Mr B. I am satisfied that she did and that the notary would have clearly advised her about the terms of the agreement. The agreement which she signed was comparatively simple. It stated that it was intended to “regulate the legal consequences under property law of their intended marriage". By article 1 it excluded community of property. In B v S I explained how in Holland in the absence of such an agreement there is an immediate community (i.e. joint ownership) of all property on marriage, whether or not that property derived from joint endeavour or is acquired from external sources. One can therefore see why an agreement excluding this default position would be commonplace. Article 2 preserved in the individual ownership of the relevant spouse property brought into the marriage as well as property acquired during the marriage. However in the first declaration on the final page the spouses did not record any property that they were bringing into the marriage. Article 5 in effect provided for the equal sharing of the marital acquest inasmuch as it provided for the joint sharing of surplus joint income. The second declaration on the final page provided that the parties chose the matrimonial property law of the Netherlands. It is worth recording what the agreement did not provide for. It did not provide for what maintenance, if any, should be paid on divorce (in contrast to the German agreement in Granatino). Nor could it, apparently. It did not specify whether any income yield or capital growth on acquired property would be separate or shared. It did not say how any merged or mingled acquired property should be treated. It did not explicitly say that the agreement would have effect in any country where the parties were divorced although the choice of law clause tilted in that direction. Interestingly, it can be seen that what the parties signed up to in 1994 anticipated by six years the revolution wrought in this country by the House of Lords’ decision in White v White [2001] 1 AC 596. I have little doubt that the wife knew exactly what she was signing up to. I am satisfied that she would have been privy to the drafts from the very first one, and that she would have seen the explanatory memorandum. I was not impressed by her evidence that she paid no attention to the agreement, dismissing it as being like something out of Dallas or Dynasty. 58. The explanatory memorandum is important so far as the question of extraterritorial effect is concerned. In explaining the choice of law clause it says:- “With regard to the Hague Marital Property Convention of 1978, in force as of 1 September 1992, the Dutch marital property law has been selected as the applicable law. In terms of this convention the marital property law of a country in which you reside for a lengthy period may be applicable to you; you can avoid this by designating your selection as the applicable law.” 59. It is certainly true that the Hague Convention of 14 March 1978 on the Law Applicable to Matrimonial Property Regimes entered into force on 1 September 1992, and has been adopted by the Netherlands, France and Luxembourg. Under that convention the parties may stipulate an applicable law and this can only be later changed by agreement. 60. In my judgment the parties plainly intended the agreement to apply wherever they lived and wherever they might divorce. 61. In my recent decision of BN v MA [2013] EWHC 4250 (Fam) I said this at para 30:- What then did the Supreme Court say about how to determine whether an agreement has been freely entered into with a full appreciation of its implications? In paragraph 69 it was stated that there is no rule at all that full disclosure, or full legal advice, is a necessary pre-condition for the satisfaction of this criterion. On the contrary, the question is in the individual case whether there has been a material lack of disclosure, or a material lack of information, or a material lack of legal advice. I venture the opinion that usually -- and that is in the usual run of cases and not a case when one is dealing with such a highly intelligent sophisticate as Mr. Granatino -- a full appreciation of the implications will normally carry with it a requirement of having at least enough legal advice to appreciate what one is giving up… 62. In my judgment when she executed the deed the wife believed, or should be taken to have believed, that she was signing up to the following:- i) ii) On divorce their jointly created capital would be divided equally. But any capital, together with its growth, acquired from an external source after the marriage, would be kept by the donee provided that it had been kept separate in the sole name of the donee. In contrast, if such acquired capital had been mingled or merged with jointly created capital, a fortiori if it had been placed in joint names, then it would fall to be divided equally. iii) The allocation said nothing about maintenance. 63. 64. Although it is true that the agreement was entered into on the very eve of the marriage, at a time when the wife was pregnant, and where she had only the impartial but not strictly independent advice of the notary I am satisfied that the wife freely entered into it with a sufficiency of advice to enable her to appreciate its implications. In my judgment, subject to the critical question of maintenance, which as is well- known can extend to capitalised periodical payments or to housing (see Van den Boogard v Laumen [1997] 2 FLR 399, ECJ), it would be fair to implement the capital division specified by the agreement, as it was understood by the wife. Compensation: this case 65. 66. In October 1994 the parties’ first child D was born in Brussels. She is now at an English University. In the summer of 1995 the husband joined his present firm in Amsterdam to where the family moved. The wife gave up her job with the US firm she had joined. She was not able to tell me what she was in fact earning at that time and there are no records from that era. She then got a job as an in-house lawyer for a telecoms company for a short while but then gave up work completely. The parties’ son E was born in August 1996; F was born in April 1998; and G was born in January 2001. Three younger children are all at a private London day schools. It is true that all four children have suffered from psychological challenges, but while I am sympathetic it will not affect the decision I have to reach and in fairness to the parties this aspect received no attention during the course of the hearing. The husband became an equity partner in his firm in May 2002 and the parties moved to London at Easter 2007. In 2010 the parties sold their home in Amsterdam and purchased a property in North London, with a mortgage of £600,000. That property needed much building work and they did not move in until April 2012; it was in the same month that they separated. Although the wife has only been living in the property for 22 months she says that she has an intense psychological need, almost amounting to desperation, to continue living there notwithstanding that it is a large property with seven bedrooms which on any view would be too big for her once all the children had left the nest. 67. In his skeleton argument Mr Chamberlayne QC for the wife states:- “This is a classic McFarlane compensation case after a long marriage. W gave up a very high-powered career to allow H to pursue his career while she cared for 4 children, all of whom have had, and continue to have, their psychological and social problems. The family had to live in Amsterdam for many years for H’s career. As a result of the above, W has suffered from low mood and depression for many years. Her attachment to her home in England now is extremely powerful and she wishes to retain it.” 68. With all due respect I totally disagree that this is a compensation case. The wife had no appreciable track record by the time she gave up work. It is not even known what she was earning when she quit, let alone whether they were high earnings. It is impossible to speculate where she would be now had she made different decisions at that time. She now says that she would prefer not to return to legal practice but would like to be a novelist. Why should I assume that she would not have made that decision in a completely different counterfactual scenario back in 1995? The way this case is put shows just how impossible it is both in terms of logic and concept to apply the principle of compensation. The assets and their division under the agreement 69. Before I tabulate the assets I set out a number of findings. i) ii) iii) I exclude completely from the divisible assets a one-twelfth interest which the husband has in his mother's house, which is subject to his mother’s usufruct which usufruct apparently extends to the advancement of capital. In my judgment this is non-matrimonial property par excellence, which is to be completely excluded under the agreement, and which is more aptly to be compared to a future inheritance. Both parties have inheritance prospects but I do not take them into account in my decision. I reject the husband's case that at the time of the marriage he had €200,000 in savings. There is no evidence that he had any such funds and if indeed he had there is no doubt that it would have been mentioned in the agreement; but in fact it specifically says that the parties do not wish to record any such assets. So far as gifts made to the husband are concerned I ignore the small early gifts made in 1995, 1997 and 1998. None of these were kept separately and they were all merged into the joint assets or spent. Of the bigger gifts made in 2008, 2009, 2010 and 2011 I do not categorise the latter two as separate property under the agreement as they were used either to buy or to pay for building works on the family home, which was placed in joint names. The former two, plus their growth, I accept should be categorised as separate property as they have been kept separate by the husband in accounts in his name. I accept his calculation that with growth they should be taken at €443,205. iv) The husband seeks to include a CGT and/or income tax liability of £240,000 should he remit his Dutch funds here to buy a house. In his skeleton Mr Chamberlayne says:- “As to the CGT, this is the usual story – H says this is what his CGT liability would be if he brought all his assets onshore (he is a tax non-dom). As will be seen, he has studiously avoided for many years bringing taxable assets onshore, and there is no likelihood he will now do so. He says he intends to buy a house in the UK, but W considers this entirely unlikely. His centre of gravity has always been the Netherlands, and that is only increasing now as he spends more and more time there. Given his income he is much more likely to continue to rent in England and buy in the Netherlands.” In BJ v MJ (Financial Remedy: Overseas Trusts) [2011] EWHC 2708 (Fam) at para 69 I pointed out that there was no general rule about the inclusion or exclusion of such tax but that the court must deal in realities and must not make its order on a false basis. In this case, the evidence from KPMG is clear. These taxes cannot be avoided if the funds are brought here, or if they are used indirectly to purchase property under some back-to-back agreement. At present the husband lives a bipolar life between London and Amsterdam. In my judgment it would not be unreasonable for him to buy a home here in which to live with his children when with him. Therefore, it is reasonable in this case to include the liability to tax as a deduction. v) The husband's has an entitlement to an annuity on his retirement from his firm. It is explained by Mr Chamberlayne QC as follows:- “The annuity is in familiar form. It is not a true pension, but is a contractual annuity arrangement for the partners. In order to qualify he has to remain a partner until 2016, at which point he qualifies for the minimum 85 units (explained below). He can increase his units over a further 5 years at the rate of 6 a year, so that by 2021 he is entitled to 115 units, which is the maximum. The total units are paid out over 5 or 8 years, at the election of the payee. Each unit varies in value according to the firm’s profits, but is around £12,000. So 115 units would be around £1.4m. Spread over 5 years that would be £280,000 per annum (subject to tax).” Having considered the evidence carefully I believe that it is more likely than not that the husband will remain a partner for 5 more years. All of my calculations in this judgment are done on that footing. In April 2019 he will be 56. I think that is a likely age at which he will be asked to leave. On this basis the annuity can be calculated as follows:- number of units value of units gross value of annuity net value of annuity 12,000 1,236,000 679,800 70. Therefore, I now tabulate the assets as follows:- Non pension assets The family home Joint accounts Joint liabilities W banks accounts W liabilities H bank accounts H liabilities Total Pension assets H pensions H annuity net Total 2,188,750 after mortgage and costs of sale (44,476) 4,243 (104,590) mainly unpaid costs 1,989,927 (240,000) CGT and income tax on remittance 3,794,537 462,124 679,800 1,141,924 71. Having regard to my findings above, the sharing of the non-pension assets under the agreement would be as follows:- Total non-pension assets H gifts from family €443,206 assets to be shared 50% to W balance to H 3,794,537 (363,284) 3,431,253 1,715,627 2,078,910 72. It would be reasonable for the wife to receive sufficient cash to pay off her debts and to have a small surplus for contingencies. It would be reasonable for the husband to take over the joint debts. The allocation would be as follows: to W lump sum to W add own assets less liabilities free capital share of house to H H assets H liabilities lump sum to W joint accounts joint liabilities share of house 120,000 4,243 (104,590) 19,653 1,695,974 1,715,627 1,989,927 (240,000) (120,000) (44,476) 492,776 2,078,910 73. It can be seen that if the exercise stopped with the sharing prescribed under the agreement the result would be that the husband would be entitled to receive £492,776 from the value of the family home, or 22.5% of its equity. In addition the pensions would be shared equally. 74. But the exercise does not stop with the sharing prescribed by the agreement. Under both Dutch law and our law it is subject to augmentation to reflect needs. The needs augmentation 75. In making the needs award I have drawn inspiration from the technique exhaustively and lucidly used and explained by Charles J in the variation proceedings in McFarlane v McFarlane [2009] 2 FLR 1322. There a scheme was devised where by virtue of a combination of equity release from Mrs McFarlane’s home together with enhanced periodical payments a Duxbury fund was to be built up over the 6 years until the retirement of Mr McFarlane which would give Mrs McFarlane at least £120,000, and, with hope and luck, £150,000 index-linked net annual income for the rest of her life. The 6 year term over which the periodical payments was to be paid was deliberately left by Charles J as extendable, as his predictions may have turned out to be false. 76. 77. 78. In McFarlane v McFarlane Charles J was prepared to attribute Mrs McFarlane with an earning capacity of £40,000 net per annum for the 6 years in question. In this case the wife has had herself restored to the roll of solicitors but, as I have indicated, wishes to do something else. She has been out of the market for nearly 20 years. I assess her annual earning capacity for the next 5 years as being modest - £20,000 gross, or £16,400 net. At the end of the 5 year period I do not bring into consideration the earning capacity of either party. If either of them can work and supplement his or her economy then all well and good, but I do not factor that aspect into my workings. Here the wife’s annual budget is £76,392, excluding payments towards a pension (which is not a permissible item) and mortgage interest. That is perfectly reasonable at the present time. I agree with Miss O’Leary’s submission that it is reasonable for the wife to be able to live in the family home for 5 more years. I have assumed that the mortgage of £600,000 could now be placed on an interest only basis at a rate of 4%, costing £24,000 annually. I take the view that in 5 years’ time it is reasonable for the wife to sell the property and to downsize thus releasing the husband’s 22.5% notional share in the property to contribute to her Duxbury fund. I take the view that in 5 years time it is reasonable for the wife to live for her autumn years in a property presently costing (inclusive of stamp duty) £1.7m. I further take the view that it is reasonable for the wife at that point to reduce her budget from £76,000 odd to £65,000. After all, it is an almost universal prescription that people live on a lower disposable income when in retirement. 79. In 5 years’ time she will be nearly 54. A Duxbury calculation on an annual income of £65,000 for a lady of that age is £1,281,000. 80. Against this the wife would be able to set the following sums 50% pension 50% net annuity equity release 231,062 339,900 492,776 1,063,738 Therefore, the wife would have a shortfall of £217,262. Paid over 5 years this equates to £43,452 annually. I shall call this the stockpile payment. 81. Accordingly in order to meet the target of a Duxbury fund of £1,281,000 the husband has to transfer to the wife his 22.5% notional share in the property (£492,776) and in addition to pay over the next 5 years periodical payments of £76,392 (general maintenance) + £24,000 (mortgage interest) – £16,400 (earning capacity) + £43,452 (stockpile payment) = £ 127,444 or £10,620 per month. This will be paid from 1 March 2014 until 1 February 2019. Just as in McFarlane it will be an extendable term, in case my predictions prove false, but I want to make clear that it is my firm view that the failure of the wife to save £217,000 from those payments will not be a good reason to extend the term, unless the money has been spent on some reasonable but presently unforeseeable need. 82. In 5 years’ time the wife’s position will be:- House Free capital Stockpile payment Pension/annuity 2,188,750 19,653 217,262 570,962 2,996,627 83. Obviously I am not ordering the wife to sell the property in 5 years’ time. That will be a matter for her. My calculations assume that she will do so, but I am not forcing her to do so. My overarching conclusion is that with £3m at age 54 the wife will be able to meet all her housing and revenue needs for the rest of her life. 84. What of the husband? Assuming a £75,000 discretionary spend, and that his present net earnings continue at the rate of £600,000 annually, his position can be calculated as follows:- year income less W pps less school fees less child pps less university costs discretionary spend surplus total surplus 600,000 (127,444) (45,000) (35,000) (21,000) (75,000) 296,556 1,476,778 600,000 (127,444) (30,000) (30,000) (42,000) (75,000) 295,556 600,000 (127,444) (30,000) (30,000) (42,000) (75,000) 295,556 600,000 (127,444) (15,000) (25,000) (63,000) (75,000) 294,556 600,000 (127,444) (15,000) (25,000) (63,000) (75,000) 294,556 85. The husband’s own capital will be £1,586,134 after he has paid £120,000 to the wife to cover her debts and to give her a small surplus (see para 72). He has in addition his half of the pensions at £570,962 and, on my calculations, will stockpile £1,476,778, a total of £3,633,874. He is paid a large part of his profit share a year in arrears and will have that element in addition. He will have ample funds to meet any remaining university or child support costs after his retirement. Child support and university fees 86. The wife’s budget computed total child maintenance costs, excluding school fees, for all four children at £22,812 annually, or £5,703 per child. This is abnormally low. In my judgment the right figure is £10,000 per annum (£833 per month) per child while in secondary education falling to £5,000 per annum (£417 per month) while in tertiary education. So far as university costs are concerned the fees are £9,000 annually and the usual benchmark is £12,000 for subsistence and rent, giving a total of £21,000. I have reflected these figures in the table at para 84 above, as well as the school fees. Conclusion 87. My order will provide as follows:- i) The family home will be transferred to the wife subject to its mortgage of £600,000. She will use her best endeavours to procure the release of the husband from the mortgage covenants and will in any event indemnify him in respect of all liability. ii) iii) iv) v) vi) The husband will pay the wife within 7 days a lump sum of £120,000. The husband will assume responsibility for the joint debts, and will take over the joint accounts. The husband’s pension and net annuity will be divided equally between him and the wife. The sharing of the annuity will be effected by a series of lump sums. Commencing on 1 March 2014 the husband will pay the wife periodical payments of £10,620 per month until 1 February 2019. This term is extendable provided that an application to extend is made before its expiration. Commencing on 1 March 2014 the husband will pay child support for each child in secondary education of £833 per month and for each child in tertiary education £417 per month. vii) The husband will pay the children’s school fees and university costs. 88. I have not mechanically recited the provisions of s25 Matrimonial Causes Act 1973 but I have had them all in mind. I have carefully considered the guidance of the House of Lords and the Supreme Court. Above all I am satisfied that my award is fair.