Family Law Hub

SA v PA (Pre-marital agreement: Compensation) [2014] EWHC 392 (Fam)

A financial provision case where the husband was Dutch and the wife English. The wife disputed a pre-marital agreement that had been made in Holland but the judge ruled that that she knew exactly what she was signing up to.

  • In a tweet: An important judgment concerning the compensation principle in maintenance cases.  

    Summary: As Mr Justice Mostyn himself noted, this should have been a simple case to resolve but it was bedevilled by two issues: 

    • firstly, the husband's ("H") reliance on a Dutch pre-marital agreement (which raised no new point of law and is not really considered here in too much detail) and; 
    • secondly, the wife's ("W") claim that her award of periodical payments 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. 

    Significantly, the pre-marital agreement was silent as to maintenance provision.

    H was Dutch and W was English. They had been married for 18 years and had four children (aged 19, 17, 15 and 13). There were non-pension assets of about £3.8 million including the former family home valued at £2.2million. H was a solicitor in a "magic circle" firm earning £600,000 net a year. The judge found that he would retire in about five years' time and he attributed a value of £1.14million to H's pension assets. W was also a solicitor but had not worked since about 1996, before the birth of their second child.

    As mentioned above, H placed considerable emphasis on a Dutch pre-marital agreement that he and W had entered into on the day before their wedding in Amsterdam and he sought to uphold the provisions of that agreement. The agreement provided for equal division of jointly created capital but capital acquired after the marriage, from an external source, would be kept separate. 

    W claimed an enhanced award in respect of the periodical payments order she sought based upon the principle of compensation. The pre-nuptial agreement was, of course, silent as to maintenance. She submitted that she had given up a very high powered career to allow H's career to flourish while she cared for the children.  

    Held: The pre-nuptial agreement as to capital division was implemented as the parties had intended and W's claim for enhanced periodical payments was rejected.  

    Turning first to the pre-nuptial agreement point, Mostyn J made a number of findings including that W had been fully aware of the contents of the agreement, that she had attended the notary's firm in The Hague and that the notary had witnessed and executed the deed putting the agreement into effect. Following a close look at the guidance given by the Supreme Court in Granatino v Radmacher, Mostyn J concluded that W had known precisely what she was signing up to, that she had seen all of the drafts of the agreement and it was clear that the parties had intended to enter into a binding agreement.  

    In dealing with W's "compensation" claim, Mostyn J conducted a detailed analysis of the judgment in McFarlane and said:

    " 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 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. Her motives seem to me to be irrelevant. 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. 

    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).

    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.

    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. 

    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 judgment, 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. 

    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. 

    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.

    It is hard to identify any case where compensation has been separately reflected as a premium or additional element. 

    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) It will only be in a very rare and exceptional case where the principle will be capable of being successfully invoked.

    ii) 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.

    iii) 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.

    iv) 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.

    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." 

    Mostyn J rejected W's argument that this was a compensaton case. He drew attention to the fact that W had had no appreciable track record by the time she gave up work – it was not even known what she had been earning when she left her job let alone whether these were "high earnings". It was impossible, he said, to speculate on where she would be now had she made different decisions at that time. He noted that W had given evidence that she would prefer not to return to legal practice but rather 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."

    Mostyn J ordered that the former family home be transferred to W subject to its £600,000 mortgage; W would also receive a lump sum of £120,000. H would take over the joint debts and his pension fund would be shared with W. Spousal maintenance of £10,620 a month was ordered to payable until 2019 in addition to child maintenance of £833 a month for each child still in secondary education and £417 a month for each child in tertiary education plus school and university costs.

Case note, published: 11/03/2014

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Published: 11/03/2014

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