Is “Compensation” Back to the Fore in Financial Remedy Proceedings

In this article I will look at the recent decision of Mr Justice Moor in the case of RC v JC [2020] EWHC 466 (Fam)

The brief facts of the matter are that the parties cohabited and were married for a total of 11 years. They had two children, aged 8 and 10. When they met both the Husband (H) and the Wife (W) were working as solicitors with H an associate and W a trainee although W became an associate on qualifying in 2001. They started a relationship in 2002/3 and in that year, H became an equity partner. By 2019 he earned net of tax just short of £1m per annum. In 2006 W became a managing associate, and in 2007 cohabitation started. Later that year W left the firm to be an in-house lawyer at a bank (on the promise she could work part time if she had children). In 2010 she was made a director, although after her maternity leave she found she was not permitted to work part time in the legal department, and took a part time role in the business team. In 2016 she was made redundant, and she did not work after that.

At the hearing W argued that she was destined for partnership at the original firm, and would have made it and earned the same as H had she not moved to the bank due to the intent to have children and their (apparent) offer of a child friendly job. She only ever earned at the bank c.£90k-£100kpa (which was the same as she earned at the solicitor’s firm when she left). W called evidence from a partner at the firm and a client of the firm that her work was excellent and she was highly trusted. Her appraisals recorded that partnership was a realistic aspiration for her. H gave evidence that she was not suitable for partnership, and that she left the firm because she wanted to, not because of maternity issues or children, and she did not like the law. H asserted that W had health issues in any event that would have prevented her making partnership.

The capital in the case was £9,7m all matrimonial. Early in the case H made an open offer of a 50/50 split plus an extra lump sum of £200,000 and a clean break. W sought (close to trial) an equal division of the capital assets in principle, although in effect sought 54% and in addition sought £360,000pa joint lives periodical payments as compensation for relationship generated disadvantage. H revised his open offer before trial to remove the £200,000 “extra” as this had been expended on costs, asserting W should have accepted the original open offer.

Having set out the section 25 factors, Moor J considered the applicable case law. Within his judgment and specifically when considering relationship-generated disadvantage he quoted extensively from Miller/McFarlane [2006] UKHL 24and Waggott v Waggott [2018] EWCA Civ 727. He went on to make the following findings and decision:

• That the wife “stood a very good chance” of becoming a partner, which would have brought her income into step with that of H §50;
• H was fully supportive of W’s decision to change employment. §52
• W gave up “the chance, as opposed to the certainty, of far higher remuneration.” §53. He emphasised this was a chance, not a certainty §67;
• He accepted that it is unusual to find significant relationship generated disadvantage that may lead to a claim for compensation, but was clear that this is one such case. W gave up her legal career, with the support of the Husband. However, he said the effect that this has on the outcome is, “of course, an entirely different matter.”
• H would continue to work for 4 years and he was clear that, when looking at relationship generated disadvantage, it was the next four years that he had to consider.
• W’s income before she left the law firm or the bank was £100k pa gross. It would now have risen to c£150k gross (+modest bonus)
• An appropriate sum for relationship generated disadvantage was £400,000. Whilst this could be portrayed as being an additional £100,000 pa for the likely remainder of the Husband’s time at the firm, it was to be paid up front on the sale of the former matrimonial home, which was a modest additional advantage to the Wife.
• There should be a clean break in this case.
• There was to be an equal division of the assets, giving W and H £4.85m each and then W was to receive the extra £400,000 lump sum on top of half for relationship generated disadvantage (54% overall).

So is this a landmark decision reopening the door to arguments about compensation. Probably not. Moor J was very firm in saying it would be unusual for a court to make the findings he had in this case. He gave this warning. “Exceptionally, in this case, I have found there to have been relationship generated disadvantage sufficient to justify an award of compensation. I continue to be of the view that such cases will be very much the exception rather than the rule. It is rare to be able to make the findings of fact that I have made in this case. Even having done so, I have been clear that the case remains a suitable one for a clean break with, by the standards of such cases, in many of these cases, the assets will be such that any loss is already covered by the applicant’s sharing claim. In other cases, the assets/income will be insufficient to justify such a claim in the first place. It follows that litigants should think long and hard before launching a claim for relationship generated disadvantage and they should not take this judgment as any sort of “green light” to do so unless the circumstances are truly exceptional”

Furthermore, there is nothing really in the judgement that derogates from the stark warning in SA v PA [2014] EWHC 392 where Mostyn J: said at §36 of the compensation principle

1. It will only be in a very rare and exceptional case where the principle will be capable of being successfully invoked.
2. Such a case will be one where the court can say without any speculation, i.e. with almost near certainty, that the claimant gave up a very high earning career which had it not been foregone would have led to earnings at least equivalent to that presently enjoyed by the respondent.
3. Such a high earning career will have been practised by the claimant over an appreciable period during the marriage. Proof of this track-record is key.

Nor does the judgement do much to detract from the warning of Moylan P in Waggott v Waggott at §139: where he said “…as a necessary factual foundation the court would have to determine, on a balance of probabilities, that the applicant’s career would have resulted in them having resources greater than those which they will be awarded by application of either the need principle or the sharing principle.”