Mills v Mills [2018] UKSC 38

Following divorce, the wife received capital to purchase a mortgage-free home but lost it through unwise property transactions, requiring her to pay rent. The Supreme Court held the court was entitled to decline increasing periodical payments to cover rent, restoring the trial judge's order.

Facts

Mr and Mrs Mills married in 1987 and divorced in 2002. By a consent order, the wife received approximately £230,000 (the vast preponderance of the parties’ liquid capital) in settlement of all her capital claims, together with periodical payments of £13,200 per annum on an open-ended basis (until joint lives, remarriage or further order). At the time, it was understood she could purchase a suitable home mortgage-free with that sum.

Instead, the wife purchased a home in Weybridge for £345,000, taking on a £125,000 mortgage. Through a series of subsequent property transactions between 2002 and 2009, her mortgage debts increased substantially in ways she could not satisfactorily explain. By 2009, she sold her last property and began renting. By April 2015, she had no capital and significant debts (overdrafts, credit card liabilities, and a tax liability totalling about £42,000).

Cross-applications were made under section 31 of the Matrimonial Causes Act 1973: the husband sought discharge or downwards variation; the wife sought upwards variation. The trial judge (Judge Everall QC) found her annual needs were £35,792 (including £10,200 rent), her net earnings £18,500, and the husband’s net income £55,000. The judge declined to vary the order in either direction, leaving a £4,092 shortfall, reasoning that the husband should not be required to make a full contribution to the wife’s housing costs given that capital provision had already been made for housing in 2002.

The Court of Appeal allowed the wife’s appeal, varying periodical payments upwards to £17,292 per annum, holding the judge had given no reason for the shortfall. The husband appealed to the Supreme Court.

Issues

The single issue on which permission was granted was: in light of the fact that provision had already been made for the wife’s housing needs in the capital settlement, was the Court of Appeal entitled to interfere with the judge’s determination not to make full allowance for her need to pay rent in the continuing order for periodical payments?

Arguments

Husband (Appellant)

The husband contended that, because the wife had received capital in 2002 sufficient to purchase a mortgage-free home, and had subsequently lost that capital through unwise transactions, the court should not require him to fund rental payments now necessitated by her own financial choices. He relied on the line of Court of Appeal authority in Pearce, North, and Yates.

Wife (Respondent)

Mr Feehan QC for the wife sought to distinguish the authorities, arguing they concerned capitalisation of periodical payments and the impermissible insinuation of further capital claims, rather than ongoing income provision. He also sought to distinguish mortgage instalments from rental payments.

Judgment

Lord Wilson (with whom Lady Hale, Lord Carnwath, Lord Hughes and Lord Hodge agreed) allowed the husband’s appeal, set aside the order of the Court of Appeal and restored the judge’s order.

The Court of Appeal had erred in saying the trial judge had given no reason for declining to increase periodical payments. The judge had given a clear reason: the wife had received capital in 2002 sufficient to provide a mortgage-free home, and her need to pay rent had arisen because of her own subsequent unwise (though not profligate or wanton) financial choices.

Lord Wilson reviewed three Court of Appeal authorities — Pearce v Pearce [2003] EWCA Civ 1054, North v North [2007] EWCA Civ 760, and Yates v Yates [2012] EWCA Civ 532 — and held they were correctly decided. In Pearce, Thorpe LJ had stated:

… should not have allowed the wife to discharge her mortgage at the husband’s expense. Such an indemnity violates the principle that capital claims compromised in 1997 could not be revisited in 2003. There is simply no power or discretion to embark on further adjustment of capital to reflect the outcome of unwise or unfortunate investment on one side or prudent or lucky investment on the other.

In North, Thorpe LJ observed:

In any application under section 31 the Applicant’s needs are likely to be the dominant or magnetic factor. But it does not follow that the respondent is inevitably responsible financially for any established needs. He is not an insurer against all hazards nor, when fairness is the measure, is he necessarily liable for needs created by the applicant’s financial mismanagement, extravagance or irresponsibility …

In Yates, Thorpe LJ described it as:

… little more than common sense that if a recipient of a lump sum twice the size of the mortgage on the final matrimonial home elects to hold back capital made available for the mortgage discharge in order to invest in a bond that bears no income, she cannot look to the payer thereafter for indemnity or contribution to the continuing mortgage interest payments.

Lord Wilson rejected the submission that the authorities were distinguishable on the basis that they concerned capitalisation. The first step in capitalising periodical payments is calculating the amount of periodical payments to which the payee would otherwise be entitled, and it was at that stage that the objectionable elements were disallowed in those cases. He also rejected any meaningful distinction between mortgage payments and rent for these purposes.

Lord Wilson emphasised the question was whether the court was “entitled” rather than “obliged” to decline funding the rent, respecting the wide statutory discretion under section 31(1) and (7). However, he observed that a court would need very good reasons to require a spouse to fund the other’s rent in such circumstances, since duplication of provision is “most improbable”.

Implications

The decision confirms that where capital provision has been made on divorce sufficient to meet a spouse’s housing needs, and that capital is subsequently lost through the recipient’s own unwise financial choices, the court is entitled (though not obliged) to decline to increase periodical payments to cover the housing costs that have arisen as a result. The paying spouse is not an insurer against all financial misfortunes generated by the payee’s own decisions.

The case reaffirms and endorses the line of Court of Appeal authority in Pearce, North, and Yates, making clear those principles apply equally to applications for variation of periodical payments and not only to capitalisation. The principle that capital claims, once compromised, cannot be effectively revisited through inflated periodical payments is preserved.

Importantly, the decision does not lay down an absolute rule. The court retains its wide discretion under section 31, and the judgment carefully states that a court is “entitled” to decline to make such provision; a court could, with very good reasons, take a different course. The decision also incidentally addressed the loose description of open-ended periodical payments orders as a “meal-ticket for life”, noting the description is misleading because such orders may be ended by further order at any time.

The case is significant for family law practitioners advising on variation applications, particularly where the payee spouse has dissipated capital originally awarded to meet housing needs. It clarifies that the husband’s (or paying spouse’s) ability to pay does not, of itself, justify increasing periodical payments to cover needs generated by the payee’s own financial mismanagement.

Verdict: The husband’s appeal was allowed. The order of the Court of Appeal was set aside and the order of Judge Everall QC, dismissing both the husband’s application and the wife’s cross-application to vary the periodical payments order, was restored. Periodical payments therefore continued at £13,200 per annum.

Source: Mills v Mills [2018] UKSC 38