Case No: B4/2008/1225
Neutral Citation Number: [2008] EWCA Civ 1653
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE PRINCIPAL REGISTRY, FAMILY DIVISION 
(MR JUSTICE SUMNER)
Royal Courts of Justice
Strand, London, WC2A 2LL

Date: Thursday, 20th November 2008

Before:

LORD JUSTICE THORPE
LORD JUSTICE LAWRENCE COLLINS
and
LORD JUSTICE GOLDRING

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Between:

	FALLON
	Appellant	
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FALLON	
Respondent	

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Mr M Horton (instructed by the Bar Pro Bono unit) appeared on behalf of the Appellant.

Ms G More O’Ferrall (instructed by Messrs Gillian Radford & Co) appeared on behalf of the Respondent.
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Judgment

Lord Justice Thorpe:

1.	The parties to this appeal married in 1994.  They are now, respectively, appellant husband 46, respondent wife 41.  They commenced cohabitation in June 1994 and married in August 1994.  Cohabitation commenced in the husband’s flat, he being a council tenant.  He had commenced his tenancy in December 1992 and therefore acquired the right to buy under legislation then current in December 1994, some four months after the marriage.  He was entitled to buy at a 44% discount.

2.	The parties continued to cohabit in their home for some four years, during the course of which two children were born.  They then separated in 1998, the husband remaining in the final matrimonial home.  

3.	The subsequent history of each reveals a sharp contrast.  Following the separation the husband exercised his right to buy.  He subsequently sold the property at a substantially advantageous figure and, with the aid of a loan from his father, was able to buy a property in the country which, at the date of proceedings in the court below, had a value of £300,000.   By contrast, the wife was rehoused in April 2000, again in a council house, but that arrangement did not endure and in February 2001 she was housed in an alternative council property, achieving right to buy in February 2003.  

4.	It seems that after the separation the wife filed a petition for divorce but did not proceed to pursue it, and so it was that the marriage remained in being until the filing of a petition on the grounds of two years separation and consent.  The first petition had been filed by the husband, the second by the wife, and on her petition decree nisi was pronounced in the summer of 2004 with decree absolute in December 2004.  Plainly the parties anticipated that there would be financial consequences at the dissolution, and between September 2004 and October 2005 they endeavoured to resolve the financial consequence by mediation.  Unfortunately that was unsuccessful and the wife issued her application for four forms of ancillary relief at the end of 2005.  

5.	The case came for contested hearing before District Judge Reid in the Principal Registry and she delivered her judgment on 2 April 2007.  By her order the husband was to transfer to the wife forthwith an insurance policy with a surrender value of about £14,000.  He was to pay her a lump sum of £75,000 and he was to pay nominal periodical payments until 19 February 2016.  There was no order for costs, simply because in quantifying the lump sum the district judge had looked to the wife’s cost estimate of £9,500 and, accordingly, roughly £10,000 of the £75,000 was earmarked to meet the wife’s costs.  

6.	Now, very unfortunately, the case before the district judge proceeded on a general mistake of fact, namely that the wife had the right to buy 25% of the equity in her secured tenancy for a payment of £63,000; so when the district judge came to reason her conclusions, having in paragraphs 46 to 50 inclusive surveyed the Section 25 (2) criteria in paragraphs 51 and 52, the district judge had said that she needed a capital sum in order to secure her own permanent home, that this was achievable since the husband had a secure income and could raise the necessary funds by mortgage and, accordingly, in paragraph 52 the district judge said: 

“The wife needs a minimum of £63,500 to achieve a 25% share in her current property […].  She needs to be able to meet her legal costs which are £9,500 if paid now.  […]  She also needs to have the option to pay off her debts or to have a modest sum as a cushion against a rainy day.”

It was on that basis that the district judge transferred to her, effectively, £90,000 of the husband’s capital.  The district judge had considered the extent of the wife’s debts in an earlier paragraph of her judgment, recording modest utility debts in addition to rent arrears of about £1700 and £12,000 of old debts which had been rolled up into a debt management scheme.  

7.	Against that judgment the husband exercised his right of appeal.  Unfortunately there seemed to have been a number of hearings before judges of the division when directions and interlocutory orders were made, hearings before Black J, Coleman J, Bennett J and Sumner J.  It was the last named who took the appeal and delivered judgment on 14 March 2008.  By the order that he made, all the provisions for the wife crafted by the district judge were confirmed, save that he introduced a mechanism which would allow the husband to reduce the lump sum from £75,000 to £60,000 if he chose to sell his home rather than to mortgage it.  Since he did not have that intention, he derived little or no benefit from the appeal to Sumner J, and in those circumstances it perhaps not surprising that he applied to this court for permission to appeal by a notice of 27 May.  The application was considered by my Lord, Wall LJ, who directed this oral hearing on notice with appeal to follow and granted some stay to hold the ring pending a full hearing by the court.  

8.	The husband’s disadvantage as a litigant in person has been removed by the decision of the Bar Pro Bono unit to take on this case.  Mr Horton has taken the case for the husband.  He has presented the case both before Wall LJ and before ourselves very skilfully and we are very grateful to him for his presentation.  I am in no doubt in my own mind that this is an appeal which must be allowed.  Whether or not it is a second appeal is an issue that has been debated but not one which I consider necessary to decide, since even if it had been a second appeal it is plainly one that the court should take in all the circumstances.  There is plainly a compelling reason to take it.

9.	The compelling reason can be simply stated.  The quantification at the first trial was plainly driven by a general misunderstanding as to fact.  Accordingly, when the case came before Sumner J it was for him to reassess particularly the quantification of any capital to pass from husband to wife afresh.  If we look at the judgment of Sumner J we see his essential reasoning appearing between paragraph 62 and 68.  In paragraph 62 he said that he hoped to be spared from going through the exercise required by Section 25 to the Matrimonial Causes Act 1973 on an assurance to the parties that he had done the work as required of him.  He then went on to consider whether the family loan that had enabled the husband to acquire his present home was a soft loan or not, and then in paragraph 65 confessed that the total of just under £90,000 was at the upper end of the bracket in which an award should be made.  He then in paragraph 67 differed from the district judge who had thought that the husband’s current home exceeded his needs and expressed himself finally thus: 

“I have looked again at the figure of £75,000.  I have given some indication already in relation to that, and I bear in mind that it was a sum determined after a long trial by an experienced and careful district judge.  I equally bear in mind that I should not, unless sufficiently justified, put my own discretion before that exercised and given to by the District Judge.  

I have, not without some hesitation, accepted that I should not reduce that sum of £75,000.  I think there is a reasonable prospect that the husband can raise it by mortgage at three times his salary, and again, it would be appreciated that, looking at that, I made the assumption that he will go on paying interest on the £22,000, but not immediately seek to repay that.”

10.	Those two paragraphs indicate to me a fundamental error on the part of the judge.  I at once acknowledge that he had before him an appellant in person who did not present the crucial argument as it has been persuasively presented by Mr Horton, but, shortly stated, it was not apt for the judge to bolster his hesitation by reliance on the fact that there had been a long trial by an experienced and careful district judge.  That approach was simply erroneous in a case in which the district judge’s quantification was not the result of a long trial or experience or care but the result of a general mistake of fact.  Once the foundation for the quantification -- namely £63,500 to enable the wife to buy her house -- had been destroyed, it was for Sumner J to look at the case in the round and ask himself the key question: what is fair as between this husband and this wife?  His failure to ask that question and to approach the appeal in that light resulted in what was, essentially, the failure of the first appellate process, and it is therefore necessary for this court to approach the quantification of lump sum afresh without regard to the basis upon which the district judge satisfied herself that £75,000 was the apt sum.  

11.	What are the present circumstances?  First, the wife remains a secure tenant in council accommodation.  Second, it is self-evident that she has no prospect in the foreseeable future of exercising the right to buy, even at the current discount value, since that would require a capital payment of £254,000.  Third, she has, much to her credit, recently obtained an offer of employment, commencing in December at an annual salary of £15,330, to reflect the fact that she will only be working thirty hours a week.  

12.	We proceed on the basis that her debts are substantially as they were before the district judge.  Ms More O’Ferrall has taken instructions and given figures which suggest perhaps some small reduction but nothing of any significance.  On the other side, the husband retains all that he had before, namely his home, the advantage of the family debt, his pension entitlement -- the only variation is that inevitably the house is not worth what it was; it is estimated to have lost about 10% of its value as a result of the general collapse of the housing market.  He has, however, transferred to the wife, pursuant to the order of Sumner J, the Phoenix endowment policy.  As a result of that, premiums have not been paid for a while and the insurance are treating the policy as paid up.  However, in a letter of 28 October they made it plain that the policy may be reinstated to its former position provided the arrears are paid off and do not amount to more than twelve months in total.

13.	So, exercising a fresh discretion and having regard to the Section 25 considerations, I would regard the available assets such as they are and as they are likely to be in the foreseeable future.  I would have regard to the respective needs of the parties.  I would have regard to their respective ages.  I would have regard to the brevity of the marriage.  I would have regard to such contributions as were made each to the other during cohabitation.  This is not a case in which conduct is in play either way.  I would have regard to the considerations outlined by District Judge Reid in paragraphs 47 to 50 of her judgment, namely that the wife as a rent payer cannot accumulate capital without getting onto the housing ladder.  She has no capital; she has debts; she has nominal pension by comparison with the husband’s substantial pension entitlement.  Although a short marriage, there has been much water under the bridge since.  The husband has another relationship which has endured as long as his marriage and has continued to endure, and there are two children by that marriage.  He is paying £332 a month in respect of his four dependent infant children under a CSA assessment.  In addition, he voluntarily pays £200 per month to the wife as supplementary payment to meet the needs of the two children.  

14.	The case is unusual on its facts in that the husband’s acquisition of capital, albeit embryonic during the marriage, was not realised until after the marriage, and to that extent it could be said that, if not a windfall, it is at least something that has been achieved post-separation by a combination of the husband’s acumen and general good fortune.  

15.	Having regard to all those considerations, I start with the conviction that there must be a clean break between these parties achieved today.  The order for periodical payments made by the district judge seems somewhat curious in that in paragraph 53 the district judge recorded: 

“The wife has not sought periodical payments for herself.  It is eight years since the parties separated.  The wife has taken proper steps to secure her own independence.  It seems appropriate that the wife’s income needs are reflected in a nominal order…”

16.	I cannot see any possible justification for a nominal order which only invites the possibility of future litigation.  So I would simply strike that provision from the orders below.  Equally, I start from the firm conviction that the Phoenix policy should never have been transferred away from the husband.  It has resulted in an inflation of the overall cost of this outcome which, as Sumner J calculated, amounted to some 30% of the husband’s assets.  That seems to me plainly excessive, given the short duration of the marriage; and in any event he needs that policy in order to secure the borrowing that he will inevitably have to arrange in order to discharge the lump sum.

17.	He also is better able to bring the policy back to its useful life by discharging the arrears.  So the only remaining question for this court is: what should be the lump sum provision?  I, in arriving at my quantification, have regard to the publicly funded costs incurred by the wife at the trial in the Principal Registry: £9,500.  They will be recovered by the Legal Services Commission as a first charge on the lump sum.  I would not have regard to costs incurred subsequently, since they are all appellate costs and would be subject to ordinary review at the conclusion of judgment.  I would, however, have regard to debts, which have been in large part incurred during the long period when she has had to adjust to the failure of the marriage.  It is right in my opinion that she should get some modest capital sum that will survive the discharge of debt and, taking all these considerations into account, I arrive at the conclusion that the lump sum that we should order is the sum of £40,000.

Lord Justice Lawrence Collins:  

18.	I agree.

Lord Justice Goldring:  

19.	I too agree.  

Order:  Appeal allowed