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RC v JC [2020] EWHC 466 (Fam): Crystal Balls and Compensation

14th May 2020

The parties met when they were both working as solicitors in the same law firm. Subsequently, the wife left legal practice to enable her to look after the parties’ children. Upon the breakdown of the marriage, she made a claim for compensation for relationship generated disadvantage. Moor J awarded her £400,000 as compensation for the fact that she had had a ‘very good chance’ of becoming a partner at the firm and had lost the chance of high remuneration.

RC (“the husband”) and JC (“the wife”) were solicitors working at the same law firm when they first met in 1999. At that time, the husband was an associate and the wife a trainee. In 2001 the wife qualified and became an associate, and shortly after the parties began a relationship in 2002/3, the husband became an equity partner. His remuneration was substantial. By way of illustration, in 2017 his net income was £986,211, in 2018 it was £998,000, and in 2019 it was £969,000.

In 2006, the wife became a managing associate at the firm. By early 2007, the parties began to cohabit, and in November 2007, the wife left the firm and became an in-house lawyer at a bank. She said she was basically assured that she would be able to work part-time in the bank’s legal department if she had children. In 2010, she became a director of the bank, but when she returned from maternity leave that year after having the first of the parties’ two children, she was told that she could not in fact work part-time in the legal department. However, she was offered a part-time position in the business team, which she accepted. She did not work in the law from that point on, nor did she maintain her practising certificate as a solicitor. In 2016, she was then made redundant by the bank when her entire team was shut down. She did not work at all after that.

The wife raised a claim based on relationship generated disadvantage. Her case was that she was destined for partnership at the law firm, which would have given her earnings equivalent to those of the husband. When she moved to the bank, there was no significant increase in her income (£90-100,000 pa when she started, with the opportunity to earn a modest bonus of £15-20,000 pa) during the nine years she was there. She said that when she was offered the position in the bank’s business team, the husband’s stock response was that she did not need to work. Indeed, she said that when she first moved to the bank, the parties had agreed that she would sacrifice her career prospects to move to a job where she would be able to be a hands-on mother. She said that the husband wanted her to give up work to have a family.

Three witnesses gave statements in support of the wife’s case. PI had been a partner at the law firm, and said that the wife was ‘streets ahead of the competition’ and destined for partnership. He said his appraisals of the wife were the highest he ever gave an associate at that point in their career. JX was a friend of the family, and said that the husband openly said he wanted the wife to give up work to have a family, on one occasion saying he wanted to have 10 children and that the wife had better give up work soon to get started. AL, Head of Compliance for EMEA at a client of the firm, said that the wife’s work was exemplary and that she was a highly trusted advisor for whom a specialist role was especially designed. There was also an email put before the court from CJ, who signed the wife’s appraisals in 2006 and 2007, in which he said he had marked her as ‘excellent’ and said it was ‘realistic’ for her to aim for partnership in due course. However, he was sure he did not tell her she would be put forward for the partnership election process at her 2007 appraisal meeting or at any other time, although the wife had said he had told her that she ‘would be put forward for partnership’ and ‘would expect to become a partner’.

The husband did not accept that the parties agreed that the wife should give up her career. He said that although he did want the wife to leave the firm because it was not healthy for the parties to work in such close proximity, it was her decision to move to the in-house legal team at the bank. He said that he had actually suggested that she move to another magic circle firm, where she had an excellent contact. He said that she did not wish to work full-time or in law, although he accepted that he said she did not need to worry because he earned enough for the whole family.

In terms of the wife’s partnership prospects, he said that the wife was not included in even the initial list of possible partners at the firm in 2007, and that although she was well regarded, it was perceived that she lacked resilience. He said that he did not consider the wife to be an exceptional candidate for partnership, despite her two ‘excellent’ appraisals in 2006 and 2007. He acknowledged that he himself had written the wife’s appraisal in 2000/2001, which gave her grades of either ‘excellent’ or ‘very good’ throughout, and in which he praised her abilities effusively (in one entry pointing out that she had spotted a point in a piece of litigation which the rest of the team had missed). He accepted that she might have been in the frame for partnership in the autumn of 2007, but that she had left the firm as he wanted her to. However, he said it was not right that he wanted her to look after the children to the exclusion of all else, and called JX’s evidence ‘total and utter rubbish’.

Sadly, the wife suffered from various health problems. She had suffered from anxiety during her finals at university and suffered from anxiety, vomiting and anorexia in 2012. Things deteriorated significantly when she was made redundant in 2016 and when the parties’ marriage broke down at the end of 2017. She began to drink to excess, was admitted to two separate mental health hospitals as an inpatient, made a suicide attempt, and in July 2018 was admitted to a rehabilitation facility for a month for treatment for depression and alcohol misuse.

A Single Joint Expert report was directed as to the wife’s mental health. Tests showed that she was in the range for a significant and moderately severe anxiety disorder. The expert said the wife was vulnerable to anxiety symptoms, particularly at times of stress, and that at the time of the report she was unable to work in any senior capacity. He said she had a 50% chance of a full recovery and that if she did recover, in five years she might be able to regain her previous professional capacity. He thought that she probably would recover to some degree but noted that it requires a great deal of motivation to go back to a senior position in a legal department, and he was uncertain about this. He thought that the likely outcome in two to three years would be for the wife to be able to do some work that was far less stressful than that.

The husband said that the wife’s health would not have been good enough for her to manage as a partner in the long term. However, the wife said that she had never had a single day off work with anxiety, either at the law firm or at the bank. She said that although she had always been of an anxious disposition, it had never affected her career. She only ‘fell off a cliff’ when her marriage broke down, but had never come close to that before.

Considering the wife’s claim for relationship generated disadvantage, Moor J said ‘I do not have a crystal ball and I cannot speculate. I cannot be sure whether the Wife would have become a partner at the firm, but I can say that she stood a very good chance. I have seen all her appraisals. In general, they show an extremely successful career at the firm. All the grades are either excellent or very good. For the last three years that we have copies of the appraisals, she was graded excellent. The comments lavish praise and are not remotely critical’ (see paragraph 50).

In terms of the impact her mental health might have had, Moor J said ‘It is, of course, possible that her vulnerabilities that have since emerged so clearly might have emerged in the partnership process and denied her the opportunity, but she had stood up well to the pressures throughout her time at the firm. The answer to the question is, therefore, that she might well have become a partner with the huge financial rewards that would have brought. It would not have been in 2007 but it could well have been in one of the immediately following years’ (see paragraph 51). Indeed, he took the view that ‘her subsequent ill-health is not relevant to these findings as she had not displayed any significant difficulties during her working life either at the firm or the bank’ (see paragraph 53).

Pointing out the ‘stark difference’ between the remuneration of managing associates and partners at law firms, and the fact that the remuneration on offer at the bank was broadly akin to that of a managing associate at the law firm at the time, Moor J found that ‘The Wife did, therefore, give up the chance, as opposed to the certainty, of far higher remuneration’. Although he accepted that it was ‘unusual to find significant relationship generated disadvantage that may lead to a claim for compensation’, he was ‘clear that this is one such case’ (see paragraph 53).

The total capital in the case came to £9,704,830, all of which Moor J treated as matrimonial. In terms of outcome, Moor J said that ‘All other things being equal, I would have divided the assets equally’ (see paragraph 62). However, he concluded that ‘an appropriate sum to award for relationship generated disadvantage, over and above [the wife’s] half share of the assets, is the sum of £400,000’ (see paragraph 68). Overall, the wife received 54% of the parties’ assets (£5,252,415, see paragraph 71).

Despite his decision, Moor J said that he continued to be of the view that cases where there has been relationship generated disadvantage sufficient to justify an award of compensation ‘will be very much the exception rather than the rule’. He said that ‘It is rare to be able to make the findings of fact that I have made in this case’, and that ‘in many of these cases, the assets will be such that any loss is already covered by the applicant’s sharing claim’, while ‘In other cases, the assets/income will be insufficient to justify such a claim in the first place’. He ended his judgment by saying ‘It follows that litigants should think long and hard before launching a claim for relationship generated disadvantage and they should not take this judgment as any sort of “green light” to do so unless the circumstances are truly exceptional’ (see paragraph 72).

Despite this warning, it seems likely that there will be an increase in the number of claims made for relationship generated disadvantage. Where the assets justify such a claim, many breadwinners-turned-homemakers will surely be eager to argue that they stood a ‘very good chance’ of reaching the apex of their chosen careers (in this case, becoming a partner) had they not given up their jobs to raise children.

However, the subjective nature of the test (Was there a ‘very good chance’ of success? Were the circumstances ‘truly exceptional’?) runs the risk of awards being made on relatively arbitrary bases, with inconsistent results. After all, every judge will have a different view on what ‘very good’ and ‘truly exceptional’ really mean. By way of analogy, practitioners will be familiar with the inconsistencies between judges grappling with what makes something ‘exceptional’ in claims for special contributions.

Indeed, giving advice on whether a client should bring a compensation claim will be doubly complicated. Moor J said that he did not have a crystal ball, but compensation claims necessitate some degree of attempted crystal ball gazing as they are concerned with trying to re-imagine history. The combination of judges not only having different interpretations of ‘exceptionality’, but also having different opinions on what might have happened, counterfactually, in the past, will make it difficult to assess with any certainty a claim’s likelihood of success.

Henrietta Boyle, Pupil, One Hare Court