Can you capitalise child maintenance? AZ v FM [2021] EWFC 2

Mostyn J was concerned with an appeal made by AZ (“H”) against a judgment of DDJ Butler (“the trial judge”) which:

(a) refused H’s application to vary downwards periodical payments made for the benefit of the child of marriage;

(b) capitalised those periodical payments; and

(c) dealt with the division of the remainder of a fund previously set aside to satisfy the parties’ liability for capital gains tax (“the CGT fund”).

In January 2020, HHJ Everall QC granted H permission to appeal the order of the trial judge on a single ground which challenged the jurisdiction of the court to capitalise periodical payments for child maintenance (Ground 2). He refused H permission in respect of two other grounds, which asserted that the trial judge was wrong (a) to draw adverse inferences as to his level of income, and (b) to divide the CGT fund as he did. H renewed orally his application for permission to appeal on Grounds 1 and 3 before Mostyn J.

Background

H and FM (“W”) were aged 57 and 55 respectively. Both were well-respected architects. H lived in the USA and held a professorship at Princeton University (although he said during the hearing that the future of his position was uncertain, because he was in a dispute with the university). W lived in London, but held a professorship at Harvard University. The parties were married for 15 years, and had enjoyed a good standard of living together.

The child of the marriage, M, was 19 and studied at a London university. Outside term time, M lived with W, and she had had very little contact with H for some years.

H had remarried in 2012, and had two young children with his second wife. H said in his skeleton argument and in his oral submissions that the eldest of these children had an incurable illness, which was life-limiting and required extensive care. H said that there were significant costs associated with the care and treatment, which could increase in the future.

Litigation history

Since their separation, the parties had been engaged in lengthy and costly litigation, not only in the Family Court but also in the Chancery Division. Moylan J (as he then was) made a final order in the financial remedy proceedings in June 2011, and there were parallel commercial proceedings arising out the division of the parties’ joint architects’ practice which did not settle until 2014. Further, W had to bring enforcement proceedings in November 2017 following H’s failure to pay periodical payments for M from June 2017, although those were not pursued once H cleared the arrears.

Order of Moylan J

The order of Moylan J set out that:

· H was to pay periodical payments to W for the benefit of M at the rate of £1,700 per month until M turned 18 or ceased full time tertiary education (to first degree level and to include one gap year), whichever was the later or until further order.

· When M was in tertiary education, provided M continued to make her primary home with W during her vacations, H was to pay one-third of the maintenance to W and two-thirds directly to M.

· The parties agreed and undertook to pay 50% each of M’s school and university fees, and reasonable extras.

In October 2017, H applied to vary Moylan J’s child maintenance order downwards. The final hearing took place before the trial judge in July 2018.

Order of the trial judge

The order of the trial judge set out that:

· The parties agreed that the terms of the order were intended to meet M’s maintenance needs through to the end of her first degree, including a gap year, and they therefore agreed not to make any further application to the court or to the CMS for further financial provision to meet M’s maintenance needs beyond the terms of the order.

· The parties agreed and undertook to pay 50% of M’s university tuition fees to the end of the first degree.

· W agreed and undertook to the court that in the event that she sought any further or additional child maintenance for M (beyond the sum provided for in the order), any such payment which H had to make to M or W would be repayable in full by W to H within 14 days of receipt.

· The CGT fund and interest accrued were to be paid to W, H was to pay W a lump sum of £59,200, less 50% of the CGT funds, in discharge of the obligation to pay periodical payments for the benefit of M (a total of £52,104), and H was to pay W’s standard costs, with a payment of £17,500 on account.

· Within seven days of receipt of those funds, W agreed and undertook to pay the sum of £44,000 into an account in M’s name, and the balance plus 50% of the CGT funds into an account in her own name, to be used solely for the purpose of sustaining M in tertiary education.

The lump sum and costs orders of the trial judge were stayed pending the outcome of the appeal, and the original order of Moylan J remained extant pro tem. H had only sporadically paid the periodical payments due under the order of Moylan J, and by his own admission he was in breach of the order. H had failed to pay the sum due in January 2020, and had failed to pay anything since March 2020. H said that in any event, he would seek to issue a further application to vary the periodical payments.

Renewed application for permission in respect of Grounds 1 and 3

Ground 1 stated that the trial judge concluded that H failed to disclose material documents engaging pillar (i) and (ii) of D v D [2015] EWHC 1393 (Fam), and that this unjustly influenced his findings in relation to H’s income, which resulted in him erroneously accepting W’s evidence in relation to her income and M’s needs, and prevented him from varying the maintenance in H’s favour. HHJ Everall QC held that the trial judge correctly directed himself as to the legal principles, and was entitled to make the findings he made on the evidence before the court.

Ground 3 stated that the trial judge’s judgment was inconsistent when it came to the lump sum which H was ordered to pay W. HHJ Everall QC held that H had no real prospect of successfully arguing that the trial judge fell into error in his calculation of the lump sum.

Mostyn J noted that the right to seek an oral renewal hearing is provided for in FPR r. 30.3(5), and that that right can only be taken away where a High Court judge or a Designated Family Judge refuses permission to appeal and certifies the application to be totally without merit (r. 30.3(5A)). However, the existence of that right contrasts with the position in the Court of Appeal, where the decision of a single judge on the papers is final and may not be orally renewed unless the single judge permits such an oral hearing (CPR r. 52.5). Mostyn J stated that ‘[i]n my opinion, appeals under FPR Part 30 should be aligned as soon as possible with those in the Court of Appeal…It is a waste of precious judicial resources for a permission application to be run twice, once on paper and once orally’ [23].

In February 2020 H applied for an oral renewal hearing. Williams J directed that the application would be heard by Mostyn J alongside the substantive appeal on Ground 2.

FPR PD30A para 4.14

H had not complied with FPR PD30A para 4.14, doubtless because in July 2020 he had elected to act in person. Para 4.14 requires the advocate for a represented appellant to file with the court four days before the appeal hearing a brief written document informing the court and the respondent of (a) the points which the appellant proposes to raise at the hearing, and (b) the reasons why permission should be granted notwithstanding the reasons given for the refusal of permission. Mostyn J stated that it is ‘a highly important provision’ and said that he could discern ‘no good reason why it should not extend to appellants who are self-represented’ [25].

Mostyn J also noted that para 4.14(b) clearly signifies that there is an obligation imposed on an appellant at an oral renewal hearing to demonstrate a good reason why the decision of the single judge refusing permission on the papers was wrong. He referred to his decision in R (Kuznetsov) v Camden LBC [2019] EWHC 3910 (Admin), where it was held that the test under CPR r. 3.3(5) was that the court should give due weight to the decision of the judge who dealt with the matter without a hearing and should be able to identify a good reason for disagreeing with their decision. Mostyn J could ‘identify no valid reason why this approach should not be applied where an oral renewal hearing is sought following a refusal of permission to appeal by a single judge on the papers’ [27]. It made no sense that Mostyn J ‘should redetermine the application de novo without giving due weight to the previous decision’ [27].

Grounds 1 and 3

In respect of Ground 1, Mostyn J noted that appeals against primary factual findings by the trial judge are always ‘extremely difficult to pursue’ [28]. H complained that the trial judge’s adverse findings against him concerning his duty of disclosure were ‘prejudiced’, but Mostyn J held that having reached the conclusion that H was in breach of his duty of candour, the trial judge was ‘plainly entitled to rely on it in reaching his conclusion as to the likely scale of the husband’s future income’ [31]. The case did ‘not come close to the high standard that needs to be demonstrated in order to disturb findings of fact’ [32]. Permission to appeal on Ground 1 was refused, and Mostyn J certified that the renewal application in relation to that Ground was totally without merit.

Similarly, Mostyn J refused permission to appeal on Ground 3, and certified that the application was also totally without merit. What the trial judge had intended was ‘abundantly clear’ [33]. Further, H’s argument that the whole of the CGT fund should be applied as a credit against the lump sum liability was ‘completely untenable’ [34]. To do so would be to treat the whole fund as H’s property, which was not a finding the trial judge made or could have made.

Ground 2

Ground 2 stated that the trial judge made a fundamental error of law by capitalising child maintenance when there is no jurisdiction under the Matrimonial Causes Act 1973 (“MCA 1973”) to do so.

Mostyn J noted that the commutation lump sum was not ordered under s. 31(7A) and (7B) of the MCA 1973, since a lump sum under those subsections can only be made in favour of a party to the marriage, and only following the discharge of a periodical payments order, either immediately or after a specified period. Although the commutation lump sum may have been payable to W, it was for the benefit of M.

Subsections (7A)-(7H) were inserted into s. 31 of the MCA 1973 by the Family Law Act 1996, and took effect on 1 November 1998 after being passed by Parliament following a campaign by professionals to amend the statute to give the court power to capitalise a periodical payments order and thus to bring about a clean break. The barrier to a commutation of spousal maintenance had been s. 31(5) of the MCA 1973, a provision which was first enacted in s. 9(5) of the Matrimonial Proceedings and Property Act 1970.

Mostyn J stated that ‘[w]hen construing a statutory provision in order to determine its jurisdictional reach the first port of call is a textual interpretation which asks what the words reasonably and fairly meant at the time that they were enacted’ [44].

He considered that ‘the words used in the statute as enacted in 1970 have a very clear literal meaning’, which is that ‘on an application to vary a periodical payments order the court may not make a property adjustment order either in favour of a party to the marriage or a child of the family’, and that ‘on such an application to vary the court may not make a lump sum order in favour of a party to the marriage but there is no prohibition on it doing so in favour of a child of the family’ [45]. Where the application is to vary a periodical payments order in favour of a child of the family ‘then there is power to award a lump sum’ [45]. That is what s. 31(5) permits. Further, the power to award a commutation lump sum in favour of a child of the family ‘exists even where the court has made a previous lump sum award in favour of that child’, since s. 23(4) of the MCA 1973 provides that the court may make an order for a lump sum in favour of a child on more than one occasion.

Mostyn J admitted that such an order for a commutation lump sum in 1970, or thereafter, would have been extremely unusual, but stated that ‘the rarity of such an order is of no assistance in answering the question whether there is jurisdiction to make it’ [48].

Although s. 31(5) of the MCA 1973 has been amended, ‘[t]he key phrase “and no order for the payment of a lump sum shall be made on an application for the variation of a periodical payments…order in favour of a party to a marriage” remains intact’ [49].

H’s arguments and analysis

H gave three reasons as to why capitalisation of child maintenance is said not to be ‘allowed’:

1. A child maintenance capitalisation, unlike a spousal maintenance capitalisation, is not watertight. The child cannot be prevented from coming back for more.

2. What is to happen if the predictions about the child’s future all turn out to be wrong?

3. Child maintenance is meant to be variable in accordance with the current circumstances prevailing referable to the child’s needs and the payer’s income, and if there is a capitalisation this cannot be achieved.

Mostyn J stated that although ‘[w]hen the court is considering capitalisation of spousal maintenance it has to make predictions about the future’, ‘one is generally able to make some predictions with a reasonable degree of accuracy’ (e.g. that the sun will rise tomorrow) [51]. He noted that in capitalisation cases, difficulties in probabilistic assessments of what might or might not happen in the future ‘are not of themselves anything to do with whether the power to commute exists’ [52].

Ultimately, Mostyn J concluded that none of H’s arguments bore upon, or said anything about, the existence of the jurisdiction of the court to discharge a child maintenance order and to award a lump sum in lieu of future periodic maintenance. The ‘clear words of s. 31(5) of the 1973 Act permit such an order to be made’ [56]. Ground 2, and the appeal itself, was therefore dismissed.

However, Mostyn J made clear that although the jurisdiction exists, ‘it will remain a very rare bird indeed’, and that in this case, the combination of incessant litigation, H’s repeated defaults in respect of his maintenance obligation, and M’s age and the relatively short period until the maintenance liability expired ‘all militated strongly in favour of a capitalisation and the ending of financial links between the parties’ [58]. In ‘the overwhelming majority of cases, however, the risks and uncertainties inherent in capitalisation will lead the court, where it has jurisdiction, to make, or continue, a traditional order for periodic payments’ [58]. Furthermore, ‘capitalisation could only properly be considered where the 1991 [Child Support] Act could not apply’ [58].

Calculations

Although the appeal was dismissed, Mostyn J did correct some errors in the computation of the lump sum. The court ‘clearly has power to correct computational or other factual error whether pursuant to the slip rule or its inherent jurisdiction’ [59].

Fresh evidence

H had sought to tell the court about the illness of his daughter, and also about his dispute with Princeton University. In his order of January 2020, HHJ Everall QC had provided that if H wished to rely on fresh evidence, he had to make a formal application to do so. No such application to adduce fresh evidence was made, even though at that time H was represented by very experienced solicitors. In the circumstances, it was ‘unprincipled and unreasonable for the husband to seek a stay pending a further variation application based on informal indications of changes of circumstances where he has chosen not to comply with this very clear order about adducing fresh evidence’ [72]. Mostyn J therefore declined to award a stay.

Costs

Mostyn J ordered H to pay W’s costs on the standard basis. Although H’s pursuit of totally meritless grounds, and his failure to negotiate, amounted to conduct for the purposes of CPR r. 44.2(4) and (5), Mostyn J did not consider that H’s pursuit of the substantive appeal, nor his failure to negotiate, took the case ‘out of the norm’, as is required for costs to be awarded on the indemnity basis. There is no specific provision in FPR PD28A imposing a duty to negotiate in appeal proceedings, and so, while the failure of H to negotiate reinforced his liability for standard costs, it did not elevate his liability to indemnity costs. W was awarded 75% of her actual costs, summarily assessed.

Henrietta Boyle, Barrister at 1 Hare Court