Financial Remedies
November 2021

Facts: The parties commenced their relationship in 2006. They each already owned their own homes. In early 2009, the parties purchased Tadmarton House near to Banbury, Oxfordshire. The property was purchased with the intention to spend their free time together (as put by Dr Rowland), and at weekends and holidays, to share with family and friends, and to live in when they retired (as put by Ms Blades). HHJ Jarmon QC held that for the purpose of this judgment, there was no material difference between the descriptions for purchase given by each party.

The property was purchased for just over £1.5 million. The purchase monies and associated costs were supplied by Dr Rowland. The property was registered in the names of both parties. The main issue before the master was how the beneficial ownership of Tadmarton House was held. Dr Rowland contended that it was held solely for him. Ms Blades contended that it was held for both of them as joint tenants in equity. On this issue the master found for Ms Blades.

Later in 2009, Ms Blades discovered that Dr Rowland had formed a relationship with another person. She told Dr Rowland she did not want him to take his new partner to Tadmarton House. Dr Rowland agreed not to do so. Ms Blades spent most weekends at the property during the period. In October 2015, Dr Rowland's new relationship broke down and thereafter there was nothing to stop him spending time at the property. However, he chose not to do so after this time. Before the master, Dr Rowland contended that his entitlement to occupy Tadmarton House had been excluded or restricted by Ms Blades from September 2009 until the end of October 2018. Ms Blades contended that the agreement between the two of them in 2009 that he should not take his new partner there did not amount to such exclusion or restriction.

The order of Deputy Master Hansen: The court at first instance had ordered that the property should be sold and the net sale proceeds be divided equally between the parties. This was not challenged on appeal [4]. The court had also found that Ms Blades had excluded Dr Rowland from the property, but only for 3 days per week over weekends in a period from 01 November 2009 to 31 October 2015. This was similarly not challenged on appeal [6].

After setting out his findings in the draft judgment at first instance, Deputy Master Hanson invited the parties to make written submissions as to the sum to be awarded on the basis of his findings [8].

The Single Joint Expert had provided valuations for the period 2009 to 2018 on three different basis: (1) annual rent value; (2) the rental that would have been paid for occasional weekend and holiday use at any time of choice based on daily rent by day of the week; and (3) the rental payable for "occasional weekend and short usage" [9].

Dr Rowland argued the appropriate rate was £650 per day for three days per weekend, and then divided by 2 to reflect Ms Blades's use, therefore seeking a compensation figure of £288,800 [12].

Ms Blades argued that the appropriate figure was £36,000. She submitted this was the appropriate figure to compensate for loss of opportunity of enjoying alternate weekends at Tadmarton House for 6 years (2009-2015). In the alternative, that £36,000 was the appropriate figure by taking the valuation (3) figure for the relevant period of £59,958, but with an additional discount because Ms Blades argued that not every opportunity to use the property at the weekend would have the value to Dr Rowlands which equated to the rent different people would pay for a weekend break [13].

Deputy Master Hansen rejected Dr Rowlands's proposed figure of £650 per day [17]. He concluded that valuation (3) was the most relevant and helpful on the facts of this case. He then applied the daily figures for the six-year exclusion period, thereby calculating a total of £59,958 [16, 18]. The daily rate was applied by Deputy Master Hansen to a three-day stay only twice per month. This was to reflect that following the parties’ relationship breakdown, they would be unlikely to spend the same weekends at the property [19].

It was common ground that in assessing the amount of compensation for the exclusion of Dr Rowland as found by the master, regard must be had to four sections of the Trusts of Land and Appointment of Trustees Act 1996 (the 1996 Act), which so far as material are set out in paragraphs [20]-[23].

The Appeal: The cross-appeals before HHJ Jarman QC were on a narrow point as to the appropriate calculation and quantum for occupation rent ordered at first instance.

Dr Rowland appealed arguing the compensation for exclusion should have been £216,199 for the period November 2009 to October 2015. Ms Blake argued that Dr Rowland's award should have been compensatory and based on loss of enjoyment rather than rental values, meaning the appropriate figure was £36,000. In the alternative, that the award should be the £59,958 or the reasons given by the master [1].

HHJ Jarman QC concluded that loss of opportunity for Dr Rowland to enjoy Tadmarton House as his own home in his free time was something different to renting someone else's property for a weekend break [29]. He observed that the facts of this case were unusual and did not fit neatly into any of the scenarios that the expert had been asked to consider and value. The master had therefore had to do the best he could on the evidence before him [30].

The difficulty with Dr Rowland's position, was that the figures proposed by him came close to the annual rental figure (valuation (1)). If that figure was divided by two to allow for both parties' separate use, then what Dr Rowland was seeking exceeded the figure under that valuation mechanism. The Court held that “In my judgment this would overcompensate Dr Rowland for loss of the enjoyment which the master found, namely the loss of long weekends rather than loss of full time enjoyment” [35].

At paragraph [39] HHJ Jarman stated that: “…the difficulty in this case is deciding which valuation given by the expert, or which combination of valuation, most accurately reflects Dr Rowland's loss as a result of the exclusion as found. Such an exercise needs to take account of fact that the purpose of purchase was to provide a weekend home for this couple which purpose had come to an end and neither enjoyed it during the period in question in the way that had been intended. However, in my judgment, the exercise also has to take into account the fact that Dr Rowland was deprived of a weekend holiday home, rather than a weekend rental. It had been chosen and intended as such, not as a place to rent for the odd weekend”.

HHJ Jarman QC concluded that:

1. Dr Rowland lost a grand weekend country home rather than a holiday let. However, when determining the appropriate compensation for exclusion, account must be given for the fact that Dr Rowland would not have stayed in the property for 4 days during the week [41].
2. That there should not be a deduction to reflect the possibility that Dr Rowland would not go to the property on every weekend he could have [42].
3. That “Where, as here, such loss is not financial, the exercise of assessment inevitably includes an evaluative element rather than being purely arithmetical. In my judgment the loss is more than occasional weekend and short usage but less than the loss of a home and falls roughly at the midpoint between the two” [43].

HHJ Jarman QC allowed the appeal, ordering a total award of £120,000 [45].

Ms Blake was given permission to bring her cross-appeal but it was dismissed [45].

Facts: The parties had separated, and divorce proceedings were begun in June 2013. The wife (w) issued form A on 1 April 2014 and the final hearing took place in August and September 2015, with the judgment being delivered at the end of the hearing. The order included a 40% pension sharing order in W's favour of the husband (H's) defined benefit pension and, overall, W received just over 50% of the available resources including the family home.

The order also included a substantive spousal maintenance order, which H subsequently appealed. However, neither party appealed the pension sharing order nor suggested that the split initially ordered by the court had been wrong.

It was not until May 2016 that the ordered was perfected and sealed. In August 2016, the pension administrators then commented on the sealed pension sharing annex and stated that, in paragraph F, the external box should be ticked because the trustee of the scheme did not permit internal transfers. Notwithstanding that they had also confirmed that failure to tick the box did not invalidate the annex, the parties submitted an amended annex to the court and the court then sealed the annex, with the external transfer box ticked, and the pension administrators received the amended sealed annex in 2017.

In the meantime, both parties had delayed applying for decree absolute, meaning that the original pension sharing order had not legally taken effect.

In October 2016, H's pension had been revalued and H received a substantially higher CE than the original figure of c.£826,000, which had been used back in court in September 2015. However, by December 2016, the company had substantially reduced the CE for the purpose of external transfers as the scheme was then underfunded. In June 2017, the CE had reduced from to c. £1.65million to only c.£722,000, i.e., less than it had been at the time of the order.

W was concerned that she would lose substantial amounts of pension credit by having to take an external transfer, following the information received from the pension administrators in August 2016. W therefore applied for a declaration of the court that her 40% share was to apply to the value of the CE as it had been at its highest point (c.£1.7million in January 2017), an application which was wholly misconceived as the court could not make such a declaration.

Neither W's lawyers nor the pension administrators had alerted her to the fact that she could have selected an internal transfer for the pension sharing order, once the scheme had become underfunded. H was not aware of this option either. Whilst the pension trustees are allowed to reduce the CE on external transfer if a scheme is underfunded, if they choose to do so they must also offer a non-member spouse an internal transfer using the full value of the member spouse's CE. The non-member spouse can then take the internal transfer at full value or, if they choose, they can have an external transfer at the reduced rate, as long as they understand both the reasons for the underfunding and the likely timescale for the underfunding to be rectified. These two points must be explained by the trustees to the non-member spouse before an external transfer can be chosen.

W finally applied for decree absolute in September 2017 and the court initially stayed the pronouncement on H's application. H then immediately applied to vary the pension sharing order, which then prevented the pension sharing order from taking effect until the variation application had been determined (Matrimonial Causes Act 1973 s31(4A)(b).

Decree absolute was then granted on 22 December 2017. It is not clear whether W was aware that, by applying for decree absolute when she did, she would have lost out on substantial widow's benefits had H died after 22 December 2017, and she would also not have the benefit of the pension sharing order because that part of the order had still not taken effect.

In April 2018, the company reversed their policy of reducing CEs for external transfers. H became aware of this but he did not disclose this to W and she was not aware of this development until March 2021.

H continued to pursue his variation application, seeking an order that W received 17% and not 40% so as to give her broadly equivalent to the sum she could have expected to receive when the order was first made in 2015, plus an uplift for inflation.

By August 2021, the CE of the pension had increased further c.£2.5million, almost entirely a result of changes in actuarial assumptions over the nearly six years since the order had been made.

Considering H's application, HHJ Hess confirmed the court will treat variations of pension sharing orders as any other variation of capital. As per Bodey J in Westbury v Sampson [2002] 1 FLR 166 and Birch v Birch [2017] UKSC 53, variation of overall quantum is a viable option in only a few cases and, noting Mostyn J in BT v CU [2021] EWFC 87 the only way to change the overall quantum should be to satisfy all the Barder conditions. Adopting Bodey J's approach, rather than Mostyn J's, HHJ Hess held that H could only succeed in a downwards variation if he could establish that "the anticipated circumstances have changed very significantly, and/or for cogent reasons rendering it quite unjust or impracticable to hold the payer to the overall quantum of the order originally made".

HHJ Hess concluded there were three powerful reasons why a change of CE alone does not justify a variation of the percentage split ordered by the court [61].

(i) “The approach taken…on behalf of the husband seems to me to involve a fundamental misunderstanding of what the CE of a defined benefit pension fund represents. The CE of a defined benefit pension fund is an actuarially calculated figure which seeks to establish what sum of money would be needed to invest to produce the income benefits which the fund is obliged to meet for a set period, i.e. the remainder of the recipient’s actuarially predicted life span. …To my mind a variation of the nature sought by the husband on the argued basis from 40% to 17% would be very unfair to the wife for similar reasons as those firmly, and in my view correctly, set out by Baron J in H v H [2010] 2 FLR 173 .

(ii) The approach taken on behalf of the husband seems to me to ignore the fact that, in so far as having a higher CE is a windfall benefit (and, for the reasons explained above, this can be illusory if one views a pension as an income producing asset) the husband has had an even greater windfall in that his residual 60% of the fund has gone up in value by even more (1.5 times) than the wife’s 40% portion of the fund. If we remind ourselves of the broad approach of DJ Thomas to the division of assets, which was to include the CEs in the asset schedule and step back to see what justifications exist for a departure from overall equality, whilst the wife’s overall asset figure is undoubtedly higher as a result in the growth of the CE, the husband’s overall asset figure is even more increased. Following the logic of DJ Thomas takes us down a road to the conclusion that no injustice is done to the husband to hold him to the 40% figure.

(iii) The reasons that the pension sharing order has not taken effect since it was first made in the judgment of DJ Thomas on 30th September 2015 are simply these. First, there was no Decree Absolute until 22nd December 2017. The husband could have applied for a Decree Absolute at any time after 30th September 2015, yet he did not, even though he was the petitioner on the divorce. Indeed, when the wife applied in September 2017 for a Decree Absolute to be made, he actively blocked it until December 2017. Secondly, on 21st November 2017 (just prior to Decree Absolute) the husband made a variation application and triggered the effect of Matrimonial Causes Act 1973, section 31(4A)(b). Overall, it seems to me that it is predominantly the husband’s actions which have prevented the pension sharing order taking effect for more than six years. By doing this he has left open the possibility of moving target syndrome more than in most cases and if he feels he has lost out by it then he is very substantially the author of his own misfortune.”

Significant amount of costs were incurred in this case (over £300,000 between the parties) because of both party's failure to address the potential for an internal transfer when the scheme had been underfunded back in 2016/17 and also because of H's failure to disclose that external transfers were no longer being made with reference to a reduced CE. Additional issues also included the pursuit, primarily by H, of a further PODE report, despite the PODE which had been ordered by the court having already declined instructions on the basis that there were flaws in the letter of instruction and little to justify a further pension sharing report in this case. H had also failed to negotiate openly and in a reasonable way.

The judge concluded that H's application to vary was hopeless from the outset. He had initially applied in part to block W's misconceived application for a declaration from the court, but he should instead have pointed out the potential for her to take an internal transfer at that stage. He should then subsequently have disclosed the change in the company's policy on external transfers, at which point, W could have withdrawn her own application.

Costs: The judge ordered H to pay W's costs and assessed these at £100,000 out of the £130,000 she had incurred, rather than ordering the full sum, to reflect that at least some of the costs arose from her misconceived application. At para [67] HHJ Hess words of Mostyn J in OG v AG [2020] EWFC 52: “The revised para 4.4 of FPR PD28A is extremely important. It requires the parties to negotiate openly in a reasonable way… and so, the wife will herself suffer a penalty in costs for adopting such an unreasonable approach…It is important that I enunciate this principle loud and clear: if, once the financial landscape is clear, you do not openly negotiate reasonably, then you will likely suffer a penalty in costs. This applies whether the case is big or small, or whether it is being decided by reference to needs or sharing.”

Post-Script: At [74] it was stated that: “The facts of this case directly give rise to an issue which is highlighted in the PAG Report of July 2019 [14], but which has not I think had much public profile in the period since then - the ticking of the external transfer box in paragraph F of the pension sharing annex. Readers of the PAG Report have to be assiduous enough to reach Appendix V, paragraphs 41 to 44”.

The PAG Report suggested that paragraph F should be removed from the standard pension sharing annex Form P1. This has not yet happened. In the meantime, the PAG Report gave the warning: “Family Lawyers would be well advised in the meantime not to tick either boxes in section F”.