LKW v. DD

FACV No. 16 of 2008

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

FINAL APPEAL NO. 16 OF 2008 (CIVIL)

(ON APPEAL FROM CACV NO. 91 OF 2007)

Mr Justice Bokhary PJ :

1.  I agree with the judgment of Mr Justice Ribeiro PJ.

Mr Justice Chan PJ :

2.  I agree with the judgment of Mr Justice Ribeiro PJ.

Mr Justice Ribeiro PJ:

3.  In this appeal, the proper approach to making financial provision orders on and after dissolution of a marriage falls to be considered.  The appeal in WLK v TMC[1]was heard at the same time.  The judgments in both appeals are to be handed down simultaneously and are intended to be read together.

4.  In ancillary relief proceedings, after an examination of the parties’ financial situation (to which I shall return), Deputy District Judge Kot[2] found that the total assets of the present appellant (the husband) came to HK$4,650,000 and ordered him to pay HK$1,550,000, being one-third of that amount, to the wife (the present respondent).

5.  On the wife’s appeal to the Court of Appeal,[3] the Court rejected challenges to certain findings and held that the only issue before it was ‘whether as a matter of law the Judge was correct to award only one third of the husband’s assets to the wife’.[4]  It took the parties’ joint assets to be HK$5,365,000, and, invoking principles laid down in recent House of Lords decisions, awarded the wife HK$2,682,500, being half that sum.

A. The issues on this appeal

A.1 The Court of Appeal’s question

6.  The Court of Appeal[5] granted the husband leave to appeal under section 22(1)(b) of the Court’s statute[6] framing the following question as having the requisite importance, namely:

“When the law courts of Hong Kong are dealing with applications made under section 7 of the Matrimonial Proceedings and Property Ordinance, Cap 192 of the Laws of Hong Kong, whether it is necessary to adopt the principle of ‘reasonable requirements’ laid down in the case of C v C [1990] 2 HKLR 183; and if it is not necessary to do so, whether the courts should adopt the ‘equal sharing’ principle laid down in a line of English cases, starting from the case of White v White [2001] 1 AC 1996.”

Identification of the issues arising calls for some elaboration.

A.2 Section 7

7.  Section 7 of the Matrimonial Proceedings and Property Ordinance[7] (“MPPO”) lays down what the court must have regard to when making orders for ancillary relief:

(1) It shall be the duty of the court in deciding whether to exercise its powers under section 4, 6 or 6A in relation to a party to the marriage and, if so, in what manner, to have regard to the conduct of the parties and all the circumstances of the case including the following matters, that is to say-

(a) the income, earning capacity, property and other financial resources which each of the parties to the marriage has or is likely to have in the foreseeable future;

(b) the financial needs, obligations and responsibilities which each of the parties to the marriage has or is likely to have in the foreseeable future;

(c) the standard of living enjoyed by the family before the breakdown of the marriage;

(d) the age of each party to the marriage and the duration of the marriage;

(e) any physical or mental disability of either of the parties to the marriage;

(f) the contributions made by each of the parties to the welfare of the family, including any contribution made by looking after the home or caring for the family;

(g) in the case of proceedings for divorce or nullity of marriage, the value to either of the parties to the marriage of any benefit (for example, a pension) which, by reason of the dissolution or annulment of the marriage, that party will lose the chance of acquiring.

8.  The court’s powers under sections 4, 6 and 6A referred to are powers to make orders for financial provision (by way of periodical payments and lump sums) and for property adjustment upon and after granting inter alia a decree of divorce.

9.  Enacted in Hong Kong in 1972, section 7 closely followed the wording of section 5 of the English Matrimonial Proceedings and Property Act 1970.  However, there has always been omitted from the Ordinance the provision (sometimes referred to as the “target” or “tailpiece” provision) in the 1970 Act which required the court:

“So to exercise those powers as to place the parties, so far as it is practical and, having regard to their conduct, just to do so, in the financial position in which they would have been if the marriage had not broken down and each had properly discharged his or her financial obligations and responsibilities towards the other.”

10.  The target provision was deleted from the English statute book by the Matrimonial and Family Proceedings Act 1984 and the parallel provision in England is now section 25 of the Matrimonial Causes Act 1973 (“MCA 1973”) which, as amended, relevantly states:

(1) It shall be the duty of the court in deciding whether to exercise its powers under section 23, 24, 24A or 24B above and, if so, in what manner, to have regard to all the circumstances of the case, first consideration being given to the welfare while a minor of any child of the family who has not attained the age of eighteen.

(2) As regards the exercise of the powers of the court under section 23(1)(a), (b) or (c), 24, 24A or 24B above in relation to a party to the marriage, the court shall in particular have regard to the following matters –

(a) the income, earning capacity, property and other financial resources which each of the parties to the marriage has or is likely to have in the foreseeable future, including in the case of earning capacity any increase in that capacity which it would in the opinion of the court be reasonable to expect a party to the marriage to take steps to acquire;

(b) the financial needs, obligations and responsibilities which each of the parties to the marriage has or is likely to have in the foreseeable future;

(c) the standard of living enjoyed by the family before the breakdown of the marriage;

(d) the age of each party to the marriage and the duration of the marriage;

(e) any physical or mental disability of either of the parties to the marriage;

(f) the contributions which each of the parties has made or is likely in the foreseeable future to make to the welfare of the family, including any contribution by looking after the home or caring for the family;

(g) the conduct of each of the parties, if that conduct is such that it would in the opinion of the court be inequitable to disregard it;

(h) in the case of proceedings for divorce or nullity of marriage, the value to each of the parties to the marriage of any benefit which, by reason of the dissolution or annulment of the marriage, that party will lose the chance of acquiring.

A.3 The Court of Appeal’s decision in C v C

11.  It is self-evident that section 7 of the MPPO (“section 7”) and section 25 of the MCA 1973 (“section 25”) are closely related in content and structure.  It is therefore unsurprising that the Hong Kong courts have consistently looked to the English case-law for persuasive guidance as to the interpretation and application of section 7.

12.  That this should be so was affirmed by the Court of Appeal in C v C, the 1990 decision referred to in the question framed.  It was the first “big money case” to reach the Court of Appeal.[8]  Hunter JA (with whom Fuad VP and Clough JA agreed) sought to distil the applicable principles from the English authorities then current.  He relied especially on Preston v Preston[9] where (after reviewing the authorities) Ormrod LJ stated:

“...the word ‘needs’ in section 25 (1) (b) in relation to the other provisions in the subsection is equivalent to ‘reasonable requirements,’ having regard to the other factors and the objective set by the concluding words of the subsection.”[10]

13.  Adopting that approach, Hunter JA held that the court should first evaluate the financial resources of both parties and then turn to an assessment of “the wife’s ‘reasonable requirements’”.  He observed that where a lump sum was to be awarded with a view to providing income, it should be computed “on the basis not of the return on the capital sum, but upon the basis that the capital would be exhausted during the wife’s lifetime”,[11] in other words, employing a Duxbury calculation.[12] 

14.  Applying C v C,wives who were full-time homemakers and child-carers could only expect awards designed to meet their reasonable requirements.  If there were surplus assets, they might qualify for a larger award if they had “earned” it by contributing financially to the family assets.  Hunter JA adopted what Ormrod LJ said in Preston v Preston to such effect:

“...active participation by the wife either by working in the business or by providing finance, will greatly enhance her contribution to the welfare of the family under paragraph (f), and may lead to a substantial increase in the lump sum over and above her ‘reasonable requirements.’ This, in effect, recognises that she has ‘earned’ a share in the total assets, and should be able to realise it and use it as she chooses.”[13]

15.  Hunter JA[14] also endorsed the proposition advanced in Preston[15]that “there does come a point, in cases where the available resources are very large, ... when the amount required to fulfil its terms ‘levels off’ and redistribution of capital as such, in some unspecified ratio begins, which is outside the section.”  In other words, after seeing to the wife’s reasonable requirements, the surplus assets were not subject to distribution under section 7 at all and if they were in the husband’s name, would be kept by him.

16.  Counsel attacked such an outcome as unfair. However, it was a result which seemed to Hunter JA:

“... necessarily to follow from the terms and effect of s. 25 above considered, and from the fact, pointed out by Bagnall, J in Harnett v Harnett [1973] Fam 156 that the legislature did not direct the court ‘to exercise its power so as to achieve a fair or just ... division of the capital and income resources of the parties’.”

A.4 The decision of the Court of Appeal in the present case

17.  The parties were unrepresented at the hearing but the Court of Appeal had the assistance of Ms Anita Yip appearing as amicus.

18.  The Court unanimously decided that “reasonable requirements” should no longer be given dominant effect as espoused in C v C and that section 7 should be approached in the manner indicated by the House of Lords in White v White[16] and in the conjoined appeals in Miller v Miller and McFarlane v McFarlane[17](which I shall refer to as “Miller/McFarlane”).  It accordingly held that when distributing assets upon a divorce, “the general principle is to apply the equal division principle unless there is a good reason to depart from it.”[18]

19.  The reasons for the Court of Appeal’s decision included acceptance of the cogency of the House of Lords’ reasoning in overturning the earlier authorities upon which C v C was based;[19] the view that favouring equality as a principle for distribution is consonant with the principles enshrined in the Basic Law and Bill of Rights;[20] and the suggestion that the ratio of C v C was that English decisions on the effect of section 25 should be followed when construing section 7 so that adopting the House of Lords’ decisions was the correct way to give C v C effect as a binding precedent.[21]

20.  Yuen JA and Lam J were understandably concerned as to whether the Court of Appeal was free to depart from C v C since they correctly took the view (on the law as it then stood) that it could not do so unless the earlier decision was reached per incuriam (which could not be said of C v C).  However, they assumed an unorthodox view of the ratio of C v C, regarding it as effectively prescribing the adoption of whatever English authorities on section 25 may be in place when construing section 7.  It is unnecessary in this judgment to discuss the correctness of that view since this Court is obviously not faced with the same constraints.  As it happens, just over a week after the Court of Appeal’s judgment, this Court handed down judgment in A Solicitor v The Law Society[22] in which the strict confines of Young v Bristol Aeroplane[23]were held no longer to apply and the Court of Appeal was held entitled to depart from a previous decision of that Court if satisfied that such decision was plainly wrong.[24]  If it had been decided sooner, A Solicitor v The Law Society might have provided a sound and preferable basis for refusing to follow C v C. 

A.5 The issues arising

21.  The issues which require to be addressed are therefore as follows:

(a) Is C v C still good law?

(b) If not, should our courts embrace the White v White and Miller/McFarlane approach when operating section 7 as Mr Russell Coleman SC, appearing for the respondent, submits, or should some other framework be adopted?  In particular, should the Australian approach to their equivalent section[25] as summarised in Figgins v Figgins[26] be adopted, as advocated by Mr David Pilbrow SC for the appellant?

(c) If C v C is not good law, what guidance should this Court give as to the essential features of the approach which replaces it?

(d) Applying the relevant principles, should the outcome in the Court of Appeal be upheld?

B. Is C v C still good law?

22.  In my view, it is clear that C v C should be overruled.  With respect, it has rested on highly questionable foundations from the outset.  It is somewhat startling that Hunter JA, citing Bagnall, J in Harnett v Harnett,[27] partly based the Court’s decision on the view that “the legislature did not direct the court to exercise its power so as to achieve a fair or just ... division of the capital and income resources of the parties”.  That was unwarranted.  Harnett v Harnett was decided in 1973 and concerned section 5 of the English 1970 Act with the “target provision” or “tailpiece” attached.  What Bagnall J said[28] was that:

“...the legislature might well have directed the court in quite general terms to exercise its power so as to achieve a fair, or equitable, or just (or any other synonymous epithet) division of the capital and income resources of the parties. It did not do so; it set up a specific target.” [He then set out the tailpiece provision.]

23.  Bagnall J was therefore construing the target provision as excluding any broader objective of fairness.  Since the Hong Kong legislature had never enacted the tailpiece and since, by 1990, it had not been in the English statute for some six years, Hartnett could not soundly be relied on. 

24.  Without the target provision it is natural to assume that a fair financial outcome must be the implicit statutory aim.  As Lord Nicholls of Birkenhead pointed out in White v White:[29]

“This tailpiece was later deleted from the legislation, and nothing inserted in its place. In consequence, the legislation does not state explicitly what is to be the aim of the courts when exercising these wide powers. Implicitly, the objective must be to achieve a fair outcome. The purpose of these powers is to enable the court to make fair financial arrangements on or after divorce in the absence of agreement between the former spouses...”

25.  In Cowan v Cowan,[30] Thorpe LJ referred to Lord Nicholls’s view as “the almost inevitable judicial conclusion that the unexpressed objective of the exercise is to arrive at a fair solution”.  It is indeed hard to imagine that the legislature might have intended the courts to reach an outcome which is other than fair.

26.  Secondly, C v C’srestriction of relevant contributions to those which were financial in nature sits badly with section 7(1)(f)  which enjoins the court to have regard to contributions “to the welfare of the family, including any contribution made by looking after the home or caring for the family”.  As Baroness Hale of Richmond pointed out[31] domestic and financial contributions should be treatedequally since section 25(2)(f), (which is materially identical):

“... does not refer to the contributions which each has made to the parties' accumulated wealth, but to the contributions they have made ... to the welfare of the family.” (Emphasis in the original)

27.  Section 7 requires the court to have regard to “all the circumstances” including the catalogue of matters that should be considered.  As Lord Hoffmann observed in Piglowska v Piglowski[32]:

“...the exercise of the discretion ... in accordance with s 25 requires the court to weigh up a large number of different considerations. The Act does not ... lay down any hierarchy.”

There is therefore no justification for treating “needs” translated into “reasonable requirements” as the determinative factor.

28.  Quite apart from the abovementioned criticisms, what is fair treatment upon dissolution of a marriage involves concepts which “change from one generation to the next”[33] and the values underlying C v C do not reflect elementary notions of fairness as between husband and wife in present day Hong Kong.  To confine a non-working wife’s award to the sum needed to meet her “reasonable requirements” and to permit the husband to keep the remaining assets is patently unfair and discriminatory, a proposition which lies at the heart of White v White and Miller/McFarlane to which I shall return.

C. What alternative to C v C should the courts adopt?

C.1 The Australian approach

29.  As noted above, Mr Pilbrow SC argued that the Australian treatment of the parties’ assets on dissolution ought to be adopted.  That is a view which has also excited some interest in certain Court of Appeal judgments.[34]

30.  The Australian authorities (led by the decision of the High Court in Mallett v Mallett[35])are said to be more appropriate because, as I understand the submission, they reject equality of division as a starting-point[36] and require the court instead to assess the quality of the contribution made by each of the parties[37] in deciding how to distribute the assets. 

31.  As Nicholson CJ and Buckley J stated in Figgins v Figgins:[38]

“...equality of division as a starting point [does] not represent the law in Australia. Similarly, in this country there is no requirement upon a trial judge to give reasons for departing from equality of division.”

And as the Full Court explained in Clauson v Clauson,[39] the approach involves a three-step exercise beginning with the identification of the parties’ property; going on to “the evaluation of the ‘contributions’ of the parties” and then turning to an assessment of other discretionary factors referred to in their statute.[40] 

32.  In Mallett, equality of division as a starting-point was rejected mainly because this was thought to import a presumption which could not be justified as a matter of statutory interpretation.[41]  And in Figgins,[42] the Court pointed to two additional reasons of policy, firstly, that:

“The danger inherent in any legislative reference to equality of sharing as a starting point is that it will be interpreted as extending such equality to the end point of any distribution.”[43]

And secondly:

“...that rule equality frequently does not provide a just and equitable outcome for separated families. In cases where the assets are meagre, equality of division is likely to do substantial injustice to the spouse who has, or has had, the primary responsibility for the care of the children.”[44]

33.  These points are examined further below.  It is however of interest to note that their Honours expressed reservations about the prime importance accorded in Australia to the qualitative assessment of the parties’ respective contributions to the marriage:

“We are troubled that in the absence of specific legislative direction, courts consider they should make subjective assessments of whether the quality of a party's contributions was ‘outstanding’. It is almost impossible to determine questions such as: Was he a good businessman/artist/surgeon or just lucky? Was she a good cook/housekeeper/entertainer or just an attractive personality? We think it invidious for a judge to in effect give ‘marks’ to a wife or husband during a marriage. We think that this doctrine of ‘special contribution’ should, in an appropriate case, be reconsidered. We think that the decision of the House of Lords in White v White [2001] 1 AC 596 ... gives force to these concerns.” §57

34.  Australian jurisprudence has always commanded great respect in this jurisdiction.  And in the present area of law, there will undoubtedly be occasions when valuable assistance may be derived from considering how particular issues have been dealt with by an Australian court.

35.  However, the discretion in each jurisdiction is governed by statute.  The body of Australian case-law in question consists of judicial guidance on the interpretation and operation of the Australian Family Act 1975.  While that Act is similarly structured and deals with many similar issues, there are nonetheless many significant differences in its wording and scope when compared with the Hong Kong Ordinance.  It follows that the Australian authorities, centred as they must be on their own legislative provisions, are incapable of supplying an overall framework to inform our approach to section 7.

C.2 The English approach

36.  The close relationship between section 7 and section 25 in content and structure makes it natural for Hong Kong courts to examine White v White and Miller/McFarlane for any persuasive guidance they may give on how section 7 should be approached. 

37.  Are there any reasons for eschewing those decisions as possible sources of guidance?  Mr Pilbrow sought to argue that one such reason might be that the values they incorporate are not values appropriate to the circumstances and culture of Hong Kong with its largely Chinese population.  I will say at once that I can see no basis for that submission. 

38.  In a well-known passage in White v White,[45] Lord Nicholls stated:

“... there is one principle of universal application which can be stated with confidence. In seeking to achieve a fair outcome, there is no place for discrimination between husband and wife and their respective roles. Typically, a husband and wife share the activities of earning money, running their home and caring for their children. Traditionally, the husband earned the money, and the wife looked after the home and the children. This traditional division of labour is no longer the order of the day. Frequently both parents work. Sometimes it is the wife who is the money-earner, and the husband runs the home and cares for the children during the day. But whatever the division of labour chosen by the husband and wife, or forced upon them by circumstances, fairness requires that this should not prejudice or advantage either party when considering paragraph (f), relating to the parties' contributions. ... If, in their different spheres, each contributed equally to the family, then in principle it matters not which of them earned the money and built up the assets. There should be no bias in favour of the money-earner and against the home-maker and the child-carer.”

39.  Those are sentiments which in my view apply with equal force in Hong Kong.  Failure to adhere to such values has led to discriminatory results in the earlier case-law which would today tend to offend elementary notions of fairness no less in Hong Kong than in England.

40.  A different reason for caution before following the path indicated by White v White and Miller/McFarlane may be found in reservations expressed in some English decisions.  Two examples will suffice.

41.  In Cowan v Cowan,[46] decided about five months after White v White, Thorpe LJ complained that:

“... the declaration of the mechanism of reasonable requirements as an impermissible aid to quantification leaves specialist practitioners and judges facing a period of considerable uncertainty which this court has only a limited power to resolve without contriving some alternative impermissible mechanism.”

42.  And in Charman v Charman (No 4),[47] while recognizing that the House of Lords’ innovations were “well founded on profound social change” and that “in the majority of cases the innovations ... were timely and beneficial,”[48] Sir Mark Potter P nevertheless had these words of caution:

“There is no doubt but that specialist practitioners have not received the decision in Miller and McFarlane as one that introduces the benefit of predictability and improvement of the prospect of compromise ... If this is so, it is highly unfortunate.”[49]

43.  In my view, while those are important concerns they should not deter this Court from broadly endorsing the White v White and Miller/McFarlane approach.  Uncertainty will inevitably be perceived to arise where a well-trodden line of authority has been set aside, requiring a new approach to be developed for the exercise of discretion in a wide variety of cases.  As experience in applying the new approach grows, such disquiet naturally subsides.  It is now ten years since White v White was decided and the English courts’ experience gained over that period represents a valuable resource to be drawn upon.

44.  Another concern voiced by Sir Mark Potter P was that in very big money cases, “the White factor” had more than doubled the levels of award so that many were saying that London had become “the divorce capital of the world for aspiring wives”.[50]  I do not consider the higher level of awards necessarily a bad thing since they may merely demonstrate the inadequacy of the awards previously confined to “reasonable requirements” in such cases.  The learned President’s worry was to some extent fuelled by the United Kingdom possibly finding itself out of step with other members of the European Union, a consideration which is not presently relevant.

45.  I turn next to the two reasons given in Figgins v Figgins for not adopting equality as a starting-point.[51]  They involve the fear that judges will go directly and unthinkingly to a 50/50 award and also the fear that equal division may prejudice spouses having the care of children in cases where the assets are meagre.  In my view, those apprehensions postulate a mechanistic misapplication of the principles (discussed further below) and do not constitute grounds for rejecting the approach in White v White and Miller/McFarlane on principle.

46.  I accordingly conclude that in exercising section 7 discretionary powers, guidance may properly be sought from the White v White line of cases as examined and discussed in this judgment.

D. The nature of guidance from this Court

47.  Before examining the new approach, it is important to appreciate the nature and limits of the guidance which this Court is able to give.  Two points should be made in this regard.

D.1 Guidelines only

48.  Section 7 confers a very broad discretion on judges dealing with financial provision.  They must consider all the circumstances of the case including the matters specified in deciding whether and how to exercise their powers.  The obvious intention is that the court should be able to deal flexibly with a great variety of different cases. However, the price of such flexibility is an inevitable element of legal uncertainty.  As Wall LJ recently reminded us,[52] Ormrod LJ made this point in relation to complaints about uncertainty voiced by practitioners some 23 years before White v White:

“I appreciate the point [counsel] has made, namely, that it is difficult for practitioners to advise clients in these cases because the rules are not very firm. That is inevitable when the courts are working out the exercise of the wide powers given by a statute like the Matrimonial Causes Act 1973. It is the essence of such a discretionary situation that the court should preserve, so far as it can, the utmost elasticity to deal with each case on its own facts. Therefore, it is a matter of trial and error and imagination on the part of those advising clients. It equally means that decisions of this court can never be better than guidelines. They are not precedents in the strict sense of the word. There is bound to be an element of uncertainty in the use of the wide discretionary powers given to the court under the Act of 1973, and no doubt there always will be, because as social circumstances change so the court will have to adapt the ways in which it exercises discretion.”[53]

49.  While recognizing that some uncertainty is inescapable, it is nevertheless desirable that the appellate courts should attempt to provide guidance with a view to encouraging consistency and predictability. As Lord Nicholls pointed out in Miller/McFarlane:

“...an important aspect of fairness is that like cases should be treated alike. So, perforce, if there is to be an acceptable degree of consistency of decision from one case to the next, the courts must themselves articulate, if only in the broadest fashion, what are the applicable if unspoken principles guiding the court's approach.”[54]

Baroness Hale added that consistency and predictability should be promoted in order “to enable and encourage the parties to negotiate their own solutions as quickly and cheaply as possible”.[55]

50.  However, as Ormrod LJ observed, [56] the courts’ pronouncements on a provision like section 7 “can never be better than guidelines”.  This is because, as Gibbs CJ explained,[57] the courts “cannot put fetters on the discretionary power which the Parliament has left largely unfettered.”  Dealing with the natural tension existing between the need for flexibility on the one hand and the desire for consistency on the other, Brennan J stated:

“The only compromise between idiosyncracy in the exercise of the discretion and an impermissible limitation of the scope of the discretion is to be found in the development of guidelines from which a judge may depart when it is just and equitable to do so -- guidelines which are not rules of universal application, but which are generally productive of just and equitable orders.”[58]

51.  As his Honour pointed out, Lord Denning MR addressed the problem of guiding the exercise of an unfettered judicial discretion in Ward v James[59]  in the following terms:

“The cases all show that, when a statute gives discretion, the courts must not fetter it by rigid rules from which a judge is never at liberty to depart. Nevertheless the courts can lay down the considerations which should be borne in mind in exercising the discretion, and point out those considerations which should be ignored. This will normally determine the way in which the discretion is exercised, and thus ensure some measure of uniformity of decision. From time to time the considerations may change as public policy changes, and so the pattern of decision may change: this is all part of the evolutionary process.”

52.  Accordingly, the first point to be made in the present context is that the principles enunciated in this judgment are in the nature such guidelines.  Financial provision applications are highly fact-specific and judges dealing with them must ultimately be guided by section 7 and the implicit aim of arriving at a fair financial outcome as between the parties.

53.  Moreover, the guidance given in this judgment cannot be and does not purport to be comprehensive.  Thus, in Charman v Charman (No 4),[60] referring to the guidance given in White and Miller” Sir Mark Potter P noted that “there is no doubt that, under that guidance, the House has left much for the courts to develop”.  The recent Supreme Court decision in Granatino v Radmacher,[61] provides an example of the courts working out the status of pre- and post-nuptial agreements against the background of the scheme laid down by White and Miller/McFarlane.

D.2 The exercise often stops at “needs”

54.  The second point is that in most cases, discussion of the guidelines is superfluous.  Usually, the available assets are insufficient to cater for the needs of both parties after termination of the marriage so that the exercise does not progress beyond consideration of their needs.  As Lord Nicholls put it in Miller/McFarlane:

“In most cases the search for fairness largely begins and ends at this stage. In most cases the available assets are insufficient to provide adequately for the needs of two homes. The court seeks to stretch modest finite resources so far as possible to meet the parties’ needs.”[62]

55.  It is therefore only in cases where surplus assets remain to be distributed after seeing to the parties’ needs that the guidelines may require consideration.  The disposal of simple cases should not be pointlessly complicated by inappropriate attempts to apply such guidelines.

E. How section 7 should be approached

E.1 The principles underpinning the White v White line of cases

E.1.a Objective of fairness 

56.  Four principles appear to me to underpin the White and Miller line of cases.  The first is that the implicit objective of a section 7 exercise is to arrive at a distribution of assets which is fair as between the parties.  This has been discussed in Section B above.

E.1.b Rejection of discrimination

57.  The second is that the concept of fairness requires the refutation of any gender or role discrimination.[63]  Lord Nicholls reiterated this at the start of his speech in Miller/McFarlane when, referring to White v White, he stated:

“... the House emphasised that in seeking a fair outcome there is no place for discrimination between a husband and wife and their respective roles. Discrimination is the antithesis of fairness. In assessing the parties’ contributions to the family there should be no bias in favour of the money-earner and against the home-maker and the child-carer. This is a principle of universal application. It is applicable to all marriages.”[64]

E.1.c Yardstick of equal division

58.  The third principle is that, with a view to eliminating insidious discrimination and promoting fairness, judges should check their tentative views on distribution against a “yardstick of equal division” which should be departed from only for good, articulated reasons.  Lord Nicholls put it thus:

“...a judge would always be well advised to check his tentative views against the yardstick of equality of division. As a general guide, equality should be departed from only if, and to the extent that, there is good reason for doing so. The need to consider and articulate reasons for departing from equality would help the parties and the court to focus on the need to ensure the absence of discrimination.”[65]

59.  In Miller/McFarlane,[66] the “yardstick” concept was elaborated into the “equal sharing principle” as further discussed below.  However, it is worth emphasising that according an equal status to the role played by each of the parties during the marriage does not necessarily or even usually mean that their assets should be equally divided.  Thus, in White [67]Lord Nicholls stated:

“Sometimes, having carried out the statutory exercise, the judge's conclusion involves a more or less equal division of the available assets. More often, this is not so. More often, having looked at all the circumstances, the judge's decision means that one party will receive a bigger share than the other.”

60.  And in Miller/McFarlane,[68] he referred to the equal sharing principle as follows:

“When their partnership ends each is entitled to an equal share of the assets of the partnership, unless there is a good reason to the contrary. Fairness requires no less. But I emphasise the qualifying phrase: ‘unless there is good reason to the contrary’. The yardstick of equality is to be applied as an aid, not a rule.”

61.  There has been some discussion as to whether it is permissible to use the “yardstick” as a “starting-point” or whether it can only be employed at the end of the section 7 exercise.  It appears to me that this question has become largely a matter of semantics.  Once it is understood that the “yardstick of equal division” and the “equal sharing principle” are merely conceptual aids and do not imply the existence of any legal presumption or burden of proof, it does not matter when or how many times a judge may use them to test conclusions tentatively reached.  The process is by its nature iterative so that the debate about “starting-point” is of little practical relevance.

E.1.d Rejection of minute retrospective investigations

62.  The fourth principle is that the court should not countenance any attempt to engage in costly and often futile retrospective investigations of the failed marriage which tend to deplete the parties’ (and the courts’) resources and to increase antagonism and discourage settlement. 

63.  Such attempts have been encountered in various contexts, including disputes over the extent of a party’s assets; over the contribution made to the welfare of the family; over the parties’ conduct; over claims to be compensated for having suffered some disadvantage, and so forth. 

64.  The English courts’ response to allegations of “special contributions” by parties seeking to justify departure from an equal division is instructive.  Referring in 2002 to the then growing practice of examining minutely the respective contributions of the parties, Coleridge J stated:

“The effect is not at all dissimilar to the ‘conduct’ debates of the 1970s. In those days ‘conduct’ was similarly raised against wives to try and limit their claims. However, the court, recognising the undesirable consequences inherent in those arguments and further the impossibility of fairly adjudicating upon them introduced the concept of ‘obvious and gross’ very effectively to limit their application. It is suggested by some that these current ‘special contribution’ debates are reintroducing conduct by the backdoor. I would say by the front door.”[69]

His Lordship added:

“... the parties are not assisted to achieve compromise when they are encouraged by the law to indulge in a detailed and lengthy retrospective involving a general rummage through the attic of their marriage to discover relics from the past to enhance their role or diminish their spouses.”[70]

65.  The courts’ disquiet was noted by Lord Nicholls in Miller/McFarlane:

“Apparently, in this post-White era there is a growing tendency for parties and their advisers to enter into the minute detail of the parties' married life, with a view to lauding their own contribution and denigrating that of the other party. In the words of Thorpe LJ, the excesses formerly seen in the litigation concerning the claimant's reasonable requirements have now been ‘transposed into disputed, and often futile, evaluations of the contributions of both of the parties’: Lambert v Lambert [2003] Fam 103, 117, para 27.”

66.  Heeding Coleridge J’s “powerful observations” in G v G,Lord Nicholls held that: [71]

“Parties should not seek to promote a case of ‘special contribution’ unless the contribution is so marked that to disregard it would be inequitable. A good reason for departing from equality is not to be found in the minutiae of married life.”

67.  Adopting the dictum of Bodey J in Lambert v Lambert,[72] his Lordship explained that disregarding the contribution would not be inequitable unless the circumstances are “of a wholly exceptional nature, such that it would very obviously be inconsistent with the objective of achieving fairness (ie, it would create an unfair outcome) for them to be ignored.”[73] 

68.  Baroness Hale took the same view, holding that the question should be approached by deploying a standard equivalent to the “obvious and gross” standard applicable in “conduct” cases.[74] 

69.  The essence of this fourth principle is reflected in Thorpe LJ’s illuminating comment in Parra v Parra:[75]

“... the outcome of ancillary relief cases depends upon the exercise of a singularly broad judgment that obviates the need for the investigation of minute detail and equally the need to make findings on minor issues in dispute. The judicial task is very different from the task of the judge in the civil justice system whose obligation is to make findings on all issues in dispute relevant to outcome. The quasi-inquisitorial role of the judge in ancillary relief litigation obliges him to investigate issues which he considers relevant to outcome even if not advanced by either party. Equally he is not bound to adopt a conclusion upon which the parties have agreed. But this independence must be matched by an obligation to eschew over-elaboration and to endeavour to paint the canvas of his judgment with a broad brush rather than with a fine sable. Judgments in this field need to be simple in structure and simply explained.”

70.  The four principles discussed above should be borne in mind when embarking on the section 7 exercise to which I now turn. 

E.2 Step 1: Identification of the assets

71.  The first step in the exercise is to ascertain the financial resources of each of the parties calculated as at the date of the hearing.  In particular, under section 7(1)(a),  the court must have regard to “the income, earning capacity, property and other financial resources” which each of the parties “has or is likely to have in the foreseeable future”.  The object will of course be to compute the net financial resources, taking account of all material liabilities. At this stage, the court need not attempt to distinguish between matrimonial and non-matrimonial property, that being an exercise best undertaken (if necessary) when considering distribution of the assets. 

72.  The court should, as Sir Mark Potter P stated,[76] carry out this first stage exercise “with whatever degree is apt to the case”.  In White v White,[77] reflecting the fourth principle discussed above,[78] Lord Nicholls cautioned against turning the clock back to the pre-1970 position when the courts “often had to attempt to unravel years of matrimonial finances and reach firm conclusions on who owned precisely what and in what shares”.  No such attempt is called for and generally, a broad brush approach will be all that is required. 

73.  The parties have an important duty to ensure that the court has sufficient information regarding their assets.  They must make full and frank disclosure and a party who fails to do so runs the risk of the court drawing adverse inferences and robustly attributing assets to him or her, or making adverse costs orders.[79]

E.3 Step 2: Assessing the parties’ financial needs

74.  The next step is for the court to assess the parties’ financial needs.  As has been noted,[80] the section 7 exercise often stops at this point since the total resources may be insufficient to go beyond or even to meet both parties’ needs.  If so, no room is left for the application of any sharing principle. Addressing the needs of say, the wife and children may immediately absorb more than half of the total assets.  If so, “needs” are, for want of any alternative, determinative.  Where the assets are meagre, a “clean break” may not be possible and it may be necessary to have recourse to an order for periodical payments.[81]

75.  The position is neatly summarised by Sir Mark Potter P in Charman v Charman (No 4)[82] as follows:

“... when the result suggested by the needs principle is an award of property greater than the result suggested by the sharing principle, the former result should in principle prevail: per Baroness Hale in Miller at [142] and [144]. ... It is also clear that, when the result suggested by the needs principle is an award of property less than the result suggested by the sharing principle, the latter result should in principle prevail: per Lord Nicholls in Miller at [28] and [29] and Baroness Hale at [139].”

76.  This is an approach which should dispel the fear expressed in Figgins v Figgins,[83] that “rule equality” is likely to work injustice where the assets are meagre.[84] 

77.  As section 7(1)(b) indicates, the process of evaluating “needs” involves assessing the financial needs, obligations and responsibilities which each of the parties has or is likely to have in the foreseeable future in the light of present and foreseeable resources.  The matters referred to section 7(1)(c) to (e), that is, standard of living, age[85] and disability, will often be relevant.  As Lord Nicholls put it in White:

“Financial needs are relative. Standards of living vary. In assessing financial needs, a court will have regard to a person's age, health and accustomed standard of living.”[86]

78.  And in Miller/McFarlane his Lordship stated in respect of “needs”:

“When the marriage ends fairness requires that the assets of the parties should be divided primarily so as to make provision for the parties’ housing and financial needs, taking into account a wide range of matters such as the parties’ ages, their future earning capacity, the family’s standard of living, and any disability of either party. Most of these needs will have been generated by the marriage, but not all of them. Needs arising from age or disability are instances of the latter.”[87]

79.  Baroness Hale stressed that the parties’ needs should be “generously interpreted”.[88] Accordingly, in trying to ensure that each party and their children have enough to supply their needs set at a level that equates, in so far as resources allow, to the standard of living they enjoyed during the marriage, those needs should not be assessed according to some perceived lowest common denominator, but with flexibility in the light of all the relevant circumstances.[89]

E.4 Step 3: Deciding to apply the sharing principle

80.  If surplus assets would remain after the parties’ needs have been catered for, the next step in the exercise should generally be for the court to apply the sharing principle to the parties’ total assets, leaving the “needs” question previously considered to be dealt with under that principle (as pointed out by Sir Mark Potter P in Charman v Charman (No 4)[90] cited above).  In other words, the court should not make an immediate allocation but should return to “needs” for them to be dealt with alongside all other material factors in the processes described below as Steps 4 and 5.

81.  In B v B (Ancillary Relief),[91] Hughes LJ summarises the purpose of the sharing principle, with the yardstick of equal division seen as part of such principle :

“The sharing principle gives rise to the general proposition that no distinction is to be made, when considering the contributions of the spouses to the marriage (section 25(2)(f)), between monetary and non-monetary contributions. Thus there also follows the requirement to test the outcome of the exercise against the yardstick of equality, and to depart from it only if and to the extent that there is a good reason for doing so: see Lord Nicholls in White at 605f. Lord Nicholls there expressly adverted to the fact that, more often than not, it is necessary to depart from it ... The importance of the ‘yardstick of equality’ is twofold. First it underlines the necessity not to treat financial contributions differently from those in non-monetary form. Second, it underlines the essential fairness of equal division in a large number of cases of shared matrimonial life.”

82.  The point reached at this third stage of the section 7 exercise therefore involves the court deciding that the sharing principle applies and taking the view that the total assets should be divided equally between the parties unless there is good reason, capable of articulation, for departing from an equal division.  It is worth emphasising, however, that as pointed out by Lord Nicholls,[92]  the court will often ultimately not  arrive at an equal division.

E.5 Step 4: considering whether there are good reasons for departing from equal division

83.  The fourth step therefore involves considering whether good reasons exist for departing from the principle of equal division. Any such departure means increasing or reducing one party’s share and correspondingly reducing or increasing the share of the other.  The question for the court is whether the balance ought to be shifted from a point of equality to some other point in the circumstances of the case.  This is necessarily a complex question which raises a range of separate issues. 

84.  What then are potentially good reasons for such a departure?  The answer is to be found in the terms of section 7 and the implicit objective of a fair distribution of the assets.  Any of the matters listed in paragraphs (a) to (g) of section 7(1) may provide an appropriate reason, as may the “conduct of the parties” and “all the circumstances” referred to in section 7(1).  The catch-all category of “all the circumstances” makes relevant any matter which bears on the fairness of the financial outcome in a matrimonial context. 

85.  It is important to stress that while such factors, individually or cumulatively, are potentially capable of resulting in a departure from an equal division, a finding that one or more of those factors are engaged does not necessarily mean that a departure must occur.  The weight to be given to such factors is in the court’s discretion to be exercised in Step 5 as described in Section E.6 below.  It cannot be over-emphasised that the matter is fact-specific and discretionary.  The sharing principle must not be mechanistically applied.

86.  I turn next to consider, as part of the fourth stage of the exercise, a variety of matters which may be material to the sharing principle’s operation.

E.5.a Source of assets as a material factor

87.  The source of an asset may provide a reason for excluding it from the sharing principle on the basis that it is not an item of matrimonial property.  Of course, in many cases, no question of any distinction between matrimonial and non-matrimonial property will arise.  But where there are assets which may be capable of being so differentiated, section 7(1)(a) implicitly requires the court to consider whether any part of such assets ought in fairness to be excluded from the sharing principle. Differentiation might also be seen as a requirement of section 7(1)(f) if the source of a particular asset suggests that it is an independent and unmatched contribution by one of the parties.

88.  However, the warning issued by Lord Nicholls must be kept in mind.  Effort and expense should not be wasted in trying to establish a sharp dividing line between what is and what is not matrimonial property:

“This difference in treatment of matrimonial property and non-matrimonial property might suggest that in every case a clear and precise boundary should be drawn between these two categories of property. This is not so. Fairness has a broad horizon. Sometimes, in the case of a business, it can be artificial to attempt to draw a sharp dividing line as at the parties' wedding day. Similarly the ‘equal sharing’ principle might suggest that each of the party's assets should be separately and exactly valued. But valuations are often a matter of opinion on which experts differ. A thorough investigation into these differences can be extremely expensive and of doubtful utility. The costs involved can quickly become disproportionate.”[93]

89.  The existing case-law identifies two classes of assets as possible candidates for exclusion on the basis of source.  The first involves property acquired during the marriage by one of the parties from a source wholly external to the marriage, such as by gift or inheritance.  The second involves assets derived from a business or an investment conducted solely by one party (sometimes called “unilateral assets”). 

E.5.a.i  Assets independently acquired

90.  In White v White, Lord Nicholls gave as examples of assets within this class, “property acquired during the marriage by one spouse by gift or succession or as a beneficiary under a trust” and “property acquired before the marriage”.[94] 

91.  He made it clear, however, that there is no hard and fast rule as to whether such property should be excluded.  It is very much a matter within the judge’s discretion to be exercised taking account of all the circumstances of the particular case:

“... when present, this factor is one of the circumstances of the case. It represents a contribution made to the welfare of the family by one of the parties to the marriage. The judge should take it into account. He should decide how important it is in the particular case. The nature and value of the property, and the time when and circumstances in which the property was acquired, are among the relevant matters to be considered.”[95]

92.  However, an important factor which comes into play is the duration of the marriage, the factor mentioned in section 7(1)(d). As Baroness Hale[96] pointed out, “the importance of the source of the assets will diminish over time”.  Her Ladyship explained:

“As the family's personal and financial interdependence grows, it becomes harder and harder to disentangle what came from where.”[97]

93.  So where it is a short marriage, the court may well be inclined to regard as excludable non-matrimonial property, assets acquired by one of the parties before the marriage or acquired in the course of the marriage from some wholly external source.  But after a long marriage, those factors are likely to have much less weight.  Thus, in White v White itself, Mr White had benefited from an initial cash contribution made by his father but, as Lord Nicholls commented, that could not carry much weight 33 years later.[98]

94.  Where one of the parties acquires certain assets after separation without any help or contribution from the other, the court may well exercise its discretion to exclude such property from an equal division. However, if at Step 2, an endeavour to meet the parties’ financial needs is the sole or paramount concern, its acquisition after the separation may not prevent such property from being included in the award.

E.5.a.ii Unilateral assets

95.  There has been a measure of disagreement in relation to unilateral assets.  Baroness Hale was inclined to regard assets sourced from the business or investment activities solely of one of the parties, ie unilateral assets, as property potentially to be excluded from an equal division.  She qualified this by saying: “The source of the assets may be taken into account but its importance will diminish over time”.[99]  By way of elaboration, her Ladyship stated:

“...the court is expressly required to take into account the duration of the marriage: section 25(2)(d). If the assets are not ‘family assets’, or not generated by the joint efforts of the parties, then the duration of the marriage may justify a departure from the yardstick of equality of division. ... This is simply to recognise that in a matrimonial property regime which still starts with the premise of separate property, there is still some scope for one party to acquire and retain separate property which is not automatically to be shared equally between them. The nature and the source of the property and the way the couple have run their lives may be taken into account in deciding how it should be shared.”[100]

96.  Lord Hoffmann and Lord Mance agreed with Baroness Hale while Lord Hope of Craighead agreed with both her Ladyship and Lord Nicholls.  Lord Nicholls, however, did not agree with Baroness Hale on this point.  He stated:

‘...the courts should be exceedingly slow to introduce, or reintroduce, a distinction between ‘family’ assets and ‘business or investment’ assets. In all cases the nature and source of the parties' property are matter to be taken into account when determining the requirements of fairness. The decision of Munby J in P v P (Inherited Property) [2005] 1 FLR 576 regarding a family farm is an instance. But ‘business and investment’ assets can be the financial fruits of a marriage partnership as much as ‘family’ assets. The equal sharing principle applies to the former as well as the latter. The rationale underlying the sharing principle is as much applicable to ‘business and investment’ assets as to ‘family’ assets.”[101]

97.  The difference of opinion is relatively narrow as it only relates to cases where the marriage is of short duration.  The merits of the competing views are open to debate[102] and it is not necessary to reach a firm conclusion in this judgment.  I will content myself with saying that I am tentatively inclined to prefer Lord Nicholls’s approach as being simpler to operate and as avoiding the possible re-introduction of a discriminatory element into the exercise.

98.  It should be noted that these refinements are not generally applicable to the matrimonial home and other assets which have been intended for and devoted to family use.  Lord Nicholls pointed this out in Miller/McFarlane as follows:

“The parties’ matrimonial home, even if this was brought into the marriage at the outset by one of the parties, usually has a central place in any marriage. So it should normally be treated as matrimonial property for this purpose. ... in principle the entitlement of each party to a share of the matrimonial property is the same however long or short the marriage may have been.”[103]

Baroness Hale agreed, describing the matrimonial home as a prime example of a capital family asset.[104]

E.5.b    Conduct as a material factor

99.  Section 7(1) makes it the court’s duty to have regard to the conduct of the parties in exercising its discretionary jurisdiction.  It is therefore in principle a factor which may, alone or in combination with others, result in a departure from an equal division.

100.  However, the courts have recoiled from permitting the parties to indulge in a post mortem of their marriage in order to find fault with each other or to air “their mutual recriminations and go into their petty squabbles for days on end”.[105]  As Sir George Baker P stated in Campbell v Campbell,[106] “...everything should be done by the court to avoid costly, indecent and time-wasting investigations” regarding conduct in relation to ancillary relief proceedings.  Otherwise the court will be faced with “... a lengthy, costly and, most likely, profitless investigation stretching over days, when allegations and counter-allegations are made by the ex-spouses or spouses, one against the other.”[107] These sentiments are just as pertinent today and are reflected in the fourth underpinning principle referred to above.[108]

101.  In Wachtel v Wachtel,[109] Ormrod J devised a means to counteract such objectionable practices which was endorsed by Lord Denning MR in the Court of Appeal.[110]  It was made clear that “conduct” was only relevant to financial provision if it was:

“... both ‘obvious and gross’ so much so that to order one party to support another whose conduct falls into this category is repugnant to anyone's sense of justice.”

His Lordship added:

“In such a case the court remains free to decline to afford financial support or to reduce the support which it would otherwise have ordered. But, short of cases falling into this category, the court should not reduce its order for financial provision merely because of what was formerly regarded as guilt or blame. To do so would be to impose a fine for supposed misbehaviour in the course of an unhappy married life.”[111]

102.  As Sir Mark Potter P stated in Charman v Charman (No 4):[112]

“...the case of Wachtel was seen at the time, and is still seen to be, fundamentally important. It established, amongst other things, that the acrimonious disputes as to the causes of the breakdown of marriage, which had characterised the law of divorce prior to the 1969 Act, were not to be born again in the arena of financial disputes.”

103.  In England and Wales, section 25 was amended in 1984 so that section 25(2)(g) now states that conduct is to be taken into account only “if that conduct is such that it would in the opinion of the court be inequitable to disregard it”.  It therefore differs from section 7 which does not contain that express qualification.  However, in my view, that amendment makes no material difference.  Section 25(2)(g) puts into statutory language what is essentially the “obvious and gross” test used before 1984. This is indicated in the passage from the learned President’s judgment cited in the preceding paragraph and made clear by Baroness Hale:

“... once the assets are seen as a pool, and the couple as equal partners, then it is only equitable to take their conduct into account if one has been very much more to blame than the other: in the famous words of Ormrod J in Wachtel v Wachtel [1973] Fam 72, 80, the conduct had been ‘both obvious and gross’. This approach is not only just, it is also the only practicable one. It is simply not possible for any outsider to pick over the events of a marriage and decide who was the more to blame for what went wrong, save in the most obvious and gross cases.”

104.  Conduct, or more accurately, negative conduct, is therefore only to be regarded as a material factor if it is “obvious and gross” in the sense explained in Wachtel v Wachtel or, which comes to the same thing, if it is such that it would in the opinion of the court be inequitable to disregard it.

105.  The “conduct” heading is sometimes used in the case-law to refer to “positive conduct” which I prefer to discuss under the heading of “contribution”.  It has also been suggested that prenuptial and post-nuptial agreements might be classified as instances of “conduct”.  I would be more inclined to regard them as relevant matters brought in under the general rubric of “all the circumstances”.  They do not in any event call for any detailed discussion in the present case.

E.5.c Financial needs as a material factor

106.  Assessment of the parties’ financial needs has been examined in describing the second stage of the exercise under discussion.[113]  It was noted that paragraphs (b) to (e) of section 7(1) have a bearing on such financial needs.  In the present context, one or more of those matters may also be relevant to deciding whether an equal division should be departed from. 

107.  Thus, as envisaged by section 7(1)(b), one of the parties may be left with significantly more onerous obligations or responsibilities (most commonly involving care of the children) than the other. Baroness Hale gave as examples of “needs”,[114] cases where one of the parties is unable or has a diminished ability to re-enter the job market; or has responsibility for the care of elderly relatives.  Another example involves cases where one of the parties has special needs arising out of a physical or mental disability (as section 7(1)(e) recognizes).  Circumstances like these are clearly capable of leading to a departure from equality of division.

E.5.d Duration of the marriage as a material factor

108.  Section 7(1)(d) specifies duration of the marriage as a factor which the court must consider when exercising its discretionary powers.  This is potentially of great importance to the question whether the court should depart from an equal division.  While the sharing principle applies to both long and short marriages,[115] it is clear that when a short marriage comes to an end, fairness may dictate that one party should exit the relationship with less than half of the total assets. 

109.  In Lord Nicholls’s words, this “reflects the instinctive feeling that parties will generally have less call upon each other on the breakdown of a short marriage”.[116]  Viewing marriage as a partnership of equals, the fruits of the partnership are likely to be less substantial after a short marriage.[117]  Mutual commitment being shorter-lived, the extent of any disadvantage brought about by separation may well be less profound.  Moreover, as we have seen[118] after a short marriage, the court may well treat property acquired by one of the parties before marriage or during the marriage by way of inheritance or gift or from some other wholly external source as excludable non-matrimonial property.  We have also noted[119] that Baroness Hale held that following a short marriage, unilateral assets in the sense explained above might be excluded.  Accordingly, the duration of the marriage is highly relevant and an equal division is more likely to be sustained after a long, rather than a short, marriage.

E.5.e Contributions to the welfare of the family as a material factor

110.  The court is duty-bound by section 7(1)(f) to have regard to the contributions made by each of the parties to the welfare of the family, including any contribution made by looking after the home or caring for the family.  This is at the heart of the approach to financial provision in White v White and Miller/McFarlane. In identifying the overall objective as fairness between the parties and in rejecting gender or role discrimination when assessing the parties’ respective contributions,[120] those authorities are in harmony with section 7(1)(f).

111.  The parties’ contributions are generally factored in as an intrinsic part of the sharing principle.  The yardstick which favours equal division unless some good reason exists to the contrary implicitly gives equal recognition to the parties’ respective contributions, though different in kind.[121]  This was put graphically by Coleridge J in RP v RP:[122]

“...the parties made a life-choice early on in their marriage; that they would have children and so the wife would cease to work. That was a life-choice made by them both with all its pros and cons. From then on her contribution has been just as full as the husband's but different. At the end both are entitled to a full share of the fruits of their combined and equal contribution; she to ensure that she has a secure future both with and later without the children and the husband so that he can re-establish himself. She has earned it (as Lord Nicholls of Birkenhead stressed in Miller), and so has he. This is not largesse by the husband, it is her entitlement deriving from her valuable contribution.”

112.  A number of problems may arise however, if an attempt is made by one of the parties to persuade the court that his or her contribution to the family’s welfare is so significantly greater than the other party’s (sometimes called a “special” or “stellar” contribution[123]) as to justify departure from an equal division. 

113.  Assuming that during the marriage the parties occupied the traditional roles of breadwinner on the one hand and homemaker or child-carer on the other, there is, as Thorpe LJ said in Cowan v Cowan,[124] the obvious difficulty “of assessing contributions which are largely of a different character and are therefore inherently incommensurable”.  Any attempted assessment would necessarily be highly subjective and unsatisfactory.

114.  Secondly, an attempt to decide whether the contributions of one of the parties during the marriage were or were not “stellar”, is likely to require highly objectionable retrospective investigations of the kind discussed above in connection with the fourth underpinning principle.[125] 

115.  While recognizing that the court must assess each and every one of the section 25(2) criteria that may affect the outcome, Thorpe LJ stated:

“...I do not accept that the duty requires a detailed critical appraisal of the performance of each of the parties during the marriage. Couples who cannot agree division are entitled to seek a judicial decision without exposing themselves to the intrusion, indignity and possible embarrassment of such an appraisal. I fully agree with Coleridge J that any other approach encourages a vain endeavour to recreate historic situations, choices and failings which in the context of a long marriage can never be recaptured fully or accurately.”[126]

116.  Thirdly, since, as noted above, the parties’ respective contributions are already factored in as an intrinsic part of applying the sharing principle, a real risk of double-counting exists if one of the parties is to be awarded some additional sum in recognition of some allegedly special contribution. 

117.  Given such difficulties, it is unsurprising that the English courts have shown a marked and growing reluctance to accept “special contribution” as a basis for departing from equal division.  The bar for raising the issue has been set very high.  As noted above,[127] Lord Nicholls and Baroness Hale adopted a standard equivalent to the “obvious and gross” standard in connexion with “conduct” and held that a premium for “special contribution” would only be considered where the circumstances are of such an exceptional nature that it would very obviously be inconsistent with the objective of achieving fairness for them to be ignored.[128]  Expressing his wariness of the issue of special contribution, Thorpe LJ in Lambert v Lambert,[129] stated:

“... for the present, given the infinite variety of fact and circumstance, I propose to mark time on a cautious acknowledgement that special contribution remains a legitimate possibility but only in exceptional circumstances.”

118.  In my view, our courts ought to proceed on the footing that the parties’ respective contributions to the welfare of the marriage are implicitly recognized within the sharing principle itself and that there will, if at all, only be rare and exceptional cases where an issue can properly be raised in favour of departing from equality on the basis of “special” or “stellar” contribution.

E.5.f     Compensation as a material factor

119.  Compensation has been canvassed as a factor material to the ultimate outcome in two different ways.  The first, deriving from section 7(1)(g), is relatively uncontroversial.  The Ordinance requires the court to have regard to “the value to either of the parties to the marriage of any benefit (for example, a pension) which, by reason of the dissolution or annulment of the marriage, that party will lose the chance of acquiring.” Whether such a loss arises in any particular case is essentially a question of fact.

120.  More difficult issues present themselves in relation to the second type of compensation which addresses, not a loss arising as a consequence of dissolution of the marriage, but a disadvantage incurred as a result of the way the parties arranged their affairs during the marriage. Lord Nicholls explained that such compensation :

“...is aimed at redressing any significant prospective economic disparity between the parties arising from the way they conducted their marriage. For instance, the parties may have arranged their affairs in a way which has greatly advantaged the husband in terms of his earning capacity but left the wife severely handicapped so far as her own earning capacity is concerned. Then the wife suffers a double loss: a diminution in her earning capacity and the loss of a share in her husband's enhanced income. This is often the case.”[130]

121.  Baroness Hale called this “compensation for relationship-generated disadvantage”, explaining it as follows:

“...the economic disadvantage generated by the relationship may go beyond need, however generously interpreted. The best example is a wife, like Mrs McFarlane, who has given up what would very probably have been a lucrative and successful career. If the other party, who has been the beneficiary of the choices made during the marriage, is a high earner with a substantial surplus over what is required to meet both parties' needs, then a premium above needs can reflect that relationship-generated disadvantage.”[131]

122.  Treating this kind of compensation as a factor material to the distributive outcome has caused difficulties, many of which have been identified by Coleridge J in RP v RP.[132] 

123.  The first problem relates to the “claim” implicit in an invocation of this type of compensation.  The party seeking to rely on it is in effect saying that but for taking up the role he or she in fact assumed during the marriage, he or she would have enjoyed a lucrative career of some description.  This sounds very much like a free-standing civil claim for loss of a chance.  But, as Coleridge J points out:

“... it is simply not possible (and highly undesirable and costly) to conduct ... a speculative ‘what if ...?’ exercise to reconstruct the parties marriage on a different basis.”[133]

124.  Moreover, ancillary relief proceedings are quasi-inquisitorial[134] and quite unsuited to entertaining claims in the nature of an action for damages.  Coleridge J explains this as follows:

“...it is neither possible nor desirable to break up, artificially, these ancillary relief claims into separate heads of claim as if they were actions for damages for personal injury. In this jurisdiction there is only one finite pot of resources which has to be divided between the two parties fairly by balancing their competing claims by reference to s 25. That is a world away from a civil claim where the resources of the defendant are irrelevant to the calculation of the claim and which is made up by aggregating separate heads of damage. In this jurisdiction every pound or percentage point added to one side subtracts in equal measure from the other.”[135]

125.  It is perhaps significant that Lord Nicholls expressed a concern that allowing such compensation might lead to double-counting:

“Compensation and financial needs often overlap in practice, so double-counting has to be avoided. But they are distinct concepts, and they are far from coterminous. A claimant wife may be able to earn her own living but she may still be entitled to a measure of compensation.”[136]

126.  In my view, the risk of double-counting in “clean break cases” arises not merely because of a potential overlap with financial needs but because compensation for “relationship-generated disadvantage” is, like “contribution”, already intrinsically factored in as part of the sharing principle.  By recognizing that a spouse who has given up a potentially lucrative career to take up a traditional role within the family should enjoy equal status with the breadwinner and should receive an equal share of the assets unless there is good reason to the contrary, the sharing principle gives effect in principle to this form of compensation.

127.  I therefore find it difficult to see how double-counting can be avoided if some additional premium is to be attributed to the lost opportunity of an independent lucrative career.  It seems unfortunate that in Miller/McFarlane, “compensation” was treated as an independent strand of fairness apparently standing apart from the strand represented by the sharing principle.  That may well have contributed to the tendency detected by Coleridge J of some parties attempting to treat “compensation” as if it was a free-standing damages claim rather than an aspect of the sharing principle.

128.  The view that compensation should be viewed as an intrinsic part of the sharing principle finds echoes in a question posed by Coleridge J (although he spoke of the overlap primarily in terms of “need”):

“The word ‘compensation’, which has been used frequently during this hearing, does not appear in the statute. Does it, I wonder, in the end, add anything to the concept of ‘financial ... obligations and responsibilities which each of the parties has’ deriving from s 25(b)? Obligations arise, surely, because of the parties’ contributions, equal but different, (including career sacrifice) at the beginning, during the marriage and beyond its end.” [137]

129.  There may of course be cases where on the particular facts, allowing for this second type of compensation is fully justified and involves no risk of double-counting.  McFarlane v McFarlane is a case with such special facts.  The wife had given up a professional career as successful and highly-paid as the husband’s and Lord Nicholls considered it a “paradigm case for an award of such compensation”.[138] However, a central feature of that case was that the parties’ capital was insufficient to permit an immediate clean break and the only way the compensation element could be addressed was in the form of periodical payments by the husband.  There was accordingly no risk of double-counting since there was no question of applying the sharing principle to any capital assets.

130.  In my view, the approach to “compensation” should be similar to the approach to “contribution” previously discussed.  Our courts ought to proceed on the footing that compensation for relationship-generated disadvantage is generally already factored in upon any application of the sharing principle.  The extent of the compensation allowed for in applying that principle and deciding the extent of any possible departure from an equal division is, in any particular case, a fact-specific question which will depend on the nature, certainty, permanence and other qualities of the disadvantage incurred, viewed in a broad brush way. It will only be in exceptional cases that a separate element of the award over and above the amount already factored in should be dedicated to such compensation on the special facts of the particular case.  In such exceptional cases, the court should not attempt to try the issue evidentially or conceptually as if it were a damages claim.  A broad brush attribution of some percentage of the award to the element of compensation would generally be sufficient.

E.6 Step 5: Deciding the outcome

131.  It is worth reiterating that, having gone through the processes I have compendiously called “Step 4”, the court is not bound to depart from equality in the division of the parties’ assets even if one or more of the factors considered are engaged on the facts.  The weight to be given to such considerations is a matter of discretion for the court. Stepping back and looking at the overall impact of the factors found to be relevant, the court may decide that certain factors carry such weight that a departure from equality is called for.  The decision is fact-specific and discretionary.  But where there is a departure, the court should explain its basis since the articulation of reasons provides a useful check on the fairness of the outcome.

132.  The framework which has been described in the preceding paragraphs is offered as guidance directing judges towards a systematic consideration of issues which may be relevant to the exercise of their section 7 discretion with a view achieving a fair financial outcome in a matrimonial context.   As explained in Section D.1 above, the principles enunciated are guidelines and not strictly binding precedents.  The exigencies of a particular case may well lead the judge to adopt a modified approach. This is an evolving area of the law and aspects of the proposed framework may require reconsideration in the future.  However, as Lord Denning MR explained in Ward v James, such a framework consists of :

“ ... considerations which should be borne in mind in exercising the discretion, and [points] out those considerations which should be ignored. This will normally determine the way in which the discretion is exercised, and thus ensure some measure of uniformity of decision.” [139]

F. The principles applied to the facts of the present case

F.1 The Judge’s findings and decision

133.  The wife was 45 years old in 2008.  She is a graduate of Tsinghua University and had worked in the mainland until she came here on a work assignment in 1993.  The parties married in 1996.  After stopping work for some time, the wife resumed employment between 1998 and 2003, at the end of which period she was earning $28,000 per month.  The husband was aged 46 in 2008.  He is the proprietor of a small business with an involvement in three Hong Kong companies.  There were no children.  The parties issued a joint petition on 6 June 2003.

134.  The ancillary relief proceedings cannot have been easy for the Judge.  They lasted 22 days with the parties appearing in person.  In a judgment delivered in Chinese, the Judge carefully examined the evidence in the light of section 7.  Her findings may be summarised as follows.  The marriage had lasted seven years and was described as “not a long marriage”.  The wife reasonably required about $15,000 to meet her monthly expenses. The corresponding figure for the husband was $13,900.  The wife was likely to be able to find a managerial job earning not less than $15,000 per month and the husband’s monthly income was not less than $19,200 per month with him receiving 13 months’ pay per year.  Each party’s earning capacity was therefore likely to enable them to meet their monthly expenditure requirements.  The parties had made equal contributions to the marriage.

135.  The Judge discounted cross-allegations about conduct holding (in translation) “that it is not inequitable to disregard such conduct”.  She also did not accept the relevance of a medical condition brought to the court’s attention by the wife.  The Judge did however accept that the wife should not be held to an agreement arrived at after mediation since the husband had materially failed to make proper disclosure of his assets.  She found that his total assets came to HK$4,650,000 and ordered him to pay one-third of that sum, that is, HK$1,550,000 to the wife.  Apart from saying that such award was (again in translation) “a fair and reasonable arrangement for the distribution of the assets of the parties”, she did not explain why she decided on the one-third/two-thirds split or indicate what legal approach she had adopted.

F.2 The Court of Appeal’s decision

136.  The Court of Appeal refused to interfere with the Judge’s findings but made certain minor adjustments to the figures she had adopted for the assets.  It held that the husband’s assets amounted to $5.3 million and the wife’s to $65,000, giving total assets of HK$5,365,000.  As we have seen in Section A.4 above, the Court invoked the principles laid down in White v White and Miller/McFarlane and awarded the wife HK$2,682,500, being half of the total assets.

Conclusion

137.  On the basis that C v C has been overruled and adopting the approach explained above, there is in my view no basis for interfering with the result reached by the Court of Appeal.

138.  None of the findings (including the figures as adjusted by the Court of Appeal) were in issue before this Court.  The total assets were therefore correctly identified.  What the Judge found was that the parties’ earning capacity would enable them to take care of their respective needs.   That left the question of how the capital assets should be shared in achieving a clean break.  The Judge having found that the parties’ had made equal contributions to the marriage and having suggested no grounds which might justify departing from an equal division, fairness strongly suggests that the outcome favoured by the Court of Appeal is correct.  As the Judge did not provide any objective grounds to justify her one-third award, the Court of Appeal’s decision in favour of equal division should be upheld and the appeal dismissed.

139.  As the appeal was conducted by counsel and solicitors on a pro bono basis, I would make an order nisi that there be no order as to costs which should stand as an order absolute unless written submissions by either party proposing some other order are received by the Court within 14 days from the date of this judgment.

140.  The Court’s gratitude should be expressed to counsel and solicitors, especially to Mr David Pilbrow SC, who appeared with Mrs Frances Irving and Ms Dora Si for the appellant husband, and to Mr Russell Coleman SC who appeared with Mr Keith Hotten and Ms Emma Tsang for the respondent wife, for appearing pro bono in the best traditions of the profession.

Mr Justice Hartmann NPJ :

141.  I agree with the judgment of Mr Justice Ribeiro PJ.

Lord Neuberger of Abbotsbury NPJ :

142.  I agree with the judgment of Mr Justice Ribeiro PJ.

Mr Justice Bokhary PJ:

143.  The Court unanimously dismisses the appeal and makes an order nisi that there be no order as to costs which should stand as an order absolute unless written submissions by either party proposing some other order are received by the Court within 14 days from the date of this judgment.   As Mr Justice Ribeiro PJ has said and I would conclude by repeating on behalf of the Court as a whole, we are most grateful to counsel and solicitors on both sides for donating their valuable services.