Supreme Court, 18 July 2018, Lady Hale P, Lord Wilson, Lord Carnwath, Lord Hughes, Lord Hodge

The husband and wife married in 1987, separated in 2000 and divorced in 2002. During the marriage the wife had worked as a qualified self-employed beauty therapist and the husband had built up his own surveying business, within two companies which he and the wife owned in equal shares. They had one child together; in 1996 the wife had suffered a late miscarriage which resulted in a long period of painful gynaecological difficulties.

In the couple’s financial remedies proceedings, a consent order was made in 2002 which provided for the sale of their joint home, for the division of the proceeds of sale so that the wife received £230,000 and the husband £23,000, for the wife to transfer to the husband her interest in policies worth £23,000 and her shares in the surveying companies, and for the husband to make periodical payments to the wife of £13,200 pa (not index linked) on a joint lives basis. The value of the two surveying companies was not identified. The rationale for the wife receiving the vast majority of the couple’s liquid capital was that ill-health was preventing the wife from working. The wife herself had claimed that she needed £350,000 with which to purchase a suitable home for herself and the child. The husband accepted that the wife had no mortgage capacity but argued that she could purchase a suitable home for £230,000 or less.

In the event, later in 2002, the wife began to work again as a beauty therapist, part-time, and purchased a property for £345,000, using all the proceeds of sale of the matrimonial home and obtaining the balance of £125,000 by means of a mortgage. The husband, communicating via solicitors, expressed surprise at the cost of the property and concern about the wife’s ability to service a mortgage of this size. The wife responded that in her view this had been the only way in which to secure an appropriate home for the child.

In 2006, the wife sold this home for £345,000 (the price for which she had bought it) but by this stage the sum owing on the mortgage had risen to £218,000. She then purchased a flat in South London for £323,000, with a deposit of £48,000 and a mortgage of £275,000 (leaving £62,000 of the proceeds of sale unaccounted for). In 2007, the wife sold this flat for £435,000 and bought another flat, closer to central London, for £520,000, with a deposit of £78,000 and a mortgage of £442,000 (leaving about £44,000 of the proceeds of sale unaccounted for). In 2009, the wife sold this property and began to rent accommodation, receiving about £120,000 from the proceeds of sale; this time, she began to rent.

In 2015 the couple made cross applications to the court under s 31(1) of the Matrimonial Causes Act 1973. The husband applied for discharge of the periodical payments order on payment of a modest capital sum (about £26,000 was suggested) or for a fixed period to be set on her continued receipt of periodical payments and/or for a downwards variation of their amount. The wife cross applied for an upwards variation of their amount.

The judge noted that the wife had not been able to give him a clear picture of her financial circumstances since 2002, including her income, although she did explain she had moved from beauty therapy to estate agency and back again. In the judge’s view, taking into account her accounts for the year to April 2014, which disclosed an annual net income of £18,500 for a three day week, the wife had an earning capacity of £18,500 net a year. (The judge rejected the argument that the wife was not well enough to work more, but accepted that she might not be able to attract more clients. The husband had remarried and had a child with his new wife and an adult step-child. His businesses had been in difficulties in 2012, but were once again doing well and likely to be thriving by 2025. The husband’s existing annual net income was £55,000, inclusive of a small salary paid by one of his companies to his new wife. The wife’s needs were said to be £35,792 a year, of which £10,200 was for rent; there was therefore a total deficit of £17,292 a year, after taking her own income into account. The judge concluded that there should be no change in the periodical payments order, that he could not set a fixed term for such payments and that the husband would not be able to afford any appropriate capitalisation of the payments. This left the wife with a deficit of £4,092 each year between her budget and her income. In the judge’s view, this was justified because the wife’s capital award back in 2002 had provided her with housing and her choices since then had generated a new need for housing. He did not consider that she had been profligate or wanton but he did consider that she had not managed her finances wisely. While rejecting the husband’s argument that the wife’s rent of £10,200 should be entirely ignored when considering his obligation towards her, the judge did consider that some part of her housing costs should be ignored. Although the judge described the wife’s schedule of annual needs as ‘very modest’ he considered that the wife would have to adjust her expenditure to live within her means, meeting only her ‘bare minimum needs’.

The wife was granted permission to appeal; the husband’s application for permission to appeal was listed to be heard at the time of the wife’s substantive appeal. The Court of Appeal allowed the wife’s appeal on the basis that the judge had not explained why any part of the basic needs budget should be cut, nor why this should happen. The Court of Appeal varied the order upwards to £17,292, backdated to the date of the judge’s judgment. It refused the husband’s application for permission to appeal on the ground that his proposed appeal had no prospect of success.

The husband sought to appeal to the Supreme Court, challenging the increase in the order for periodical payments and attempting to challenge its refusal to discharge the order for periodical payments or its refusal to set a fixed period and/or to vary the amount downwards. The Supreme Court limited its grant of permission to the increase in the order for periodical payments, as no appeal could be brought against a refusal of permission, by virtue of s 54(4) of the Access to Justice Act 1999.

The Supreme Court allowed the husband’s appeal and set aside the Court of Appeal’s order, restoring the order of the judge.

The Court of Appeal had erred in saying that the judge had given no reason for declining to increase the order for periodical payments so as to enable the wife to meet all her basic needs. The judge had given a clear reason, which related to the wife’s housing need having been generated by her own actions post divorce. The question which the Court of Appeal should have addressed was as follows: in circumstances in which at the time of a divorce a spouse, say a wife, was awarded capital which enabled her to purchase a home but later she exhausted the capital by entry into a series of unwise transactions and so developed a need to pay rent, was the court entitled to decline to increase the order for the husband to make periodical payments to her so as to fund payment of all (or perhaps even any) of her rent even if he could afford to do so?

The answer to this question was ‘yes’, applying Pearce v Pearce [2003] EWCA Civ 1054, North v North [2007] EWCA Civ 760, and Yates v Yates [2002] EWCA Civ 532. There was no relevant distinction between the mortgage instalments disallowed in Pearce and Yates and payments of rent. These three authorities could not be distinguished on the basis that they concerned capitalisation of periodical payments rather than periodical payments themselves; the first step in the exercise of capitalisation was a calculation of the amount of periodical payments to which, in the absence of capitalisation, the payee would then have been entitled. A court would need to give very good reasons for requiring a spouse to fund payment of the other spouse’s rent in the circumstances posed by the question; one spouse might well have an obligation to make provision for the other spouse but an obligation to duplicate it in such circumstances was most improbable.

The judge had clearly been entitled to decline to vary the order for periodical payments so as to require the husband to pay all of the wife’s rent.