A husband, represented by Mr Sternberg, applies for permission to appeal against an order made on appeal, in ancillary relief proceedings, by HHJ Caddick as if sitting in the Tunbridge Wells County Court on 13 December 2006. By his order, made pursuant to a reserved judgment following a hearing at which the husband was again represented by Mr Sternberg but at which the wife appeared in person, the circuit judge allowed an appeal by the wife against an order for ancillary relief in her favour made by District Judge Lethem on 7 August 2006. The circuit judge made enlarged provision for the wife by way of ancillary relief on a clean break basis and the husband aspires to appeal to this court upon the basis either that the circuit judge should have dismissed the wife’s appeal or that, were it open to him to have allowed it, it was not open to him to have allowed it to the extent to which he did.

It follows that, in that this would be a second appeal albeit not by the same appellant, section 55 of the Access to Justice Act 1999 prohibits permission unless the proposed appeal raises an important point of principle or practice or there is some other compelling reason for it to be heard. We hear the application orally today, otherwise than upon notice to the wife, by virtue of a direction made on paper by Wall LJ to adjourn it for that purpose.

The husband is aged 58 and earns £27,000 per annum net. He is living in rented accommodation in Horley, Surrey. The wife is aged 47 and is not presently working although it is common ground that she has an earning capacity. She occupies the former matrimonial home in Biddenden, Kent, which is vested in the husband’s sole name and which before the district judge was taken, by agreement, to have a net value of £274,000.

The parties were married in 1996 and separated in 2002 and so, in the words of the district judge, it was a shortish marriage. It was a second marriage for both of them. Whereas the husband brought substantial assets into the marriage, the wife brought in effect none. The most substantial of the husband’s pre-matrimonial assets was an investment property which he owned and still owns in Sunningdale, Berkshire. By agreement that was taken by the district judge to have a value of £562,000. The husband lets the property but oddly receives net rental from it of only about £5,000 per annum, i.e. less than 1% of its value. In dismissing that factor as irrelevant, upon the basis that the case was agreed to be fit for a clean break and thus that an issue as to income was irrelevant, the circuit judge arguably made an error in the husband’s favour; for income reasonably to be generated by a party in the future, whether earned or unearned, is never irrelevant to the fair distribution of capital even on a clean break basis.

Apart from the matrimonial home in Biddenden and the husband’s investment property in Sunningdale, the only other substantial asset of the parties was a company which ran a care home in Folkestone and which, before the district judge, had an agreed value on a break up basis of £170,000. That figure was, however, calculated after allowing for a debt owed by the company to the husband in the sum of £90,000; so, in one sense, the company might be regarded as having a value to the family of £260,000. Apart from one nominal share held by the wife, all the issued shares in the company were held by the husband. The care home had apparently been acquired in order to provide the wife, who, like the husband, has a good track record in business, with the opportunity to run it; at times she did so through a manager and at others she performed the managerial functions herself.

Before the district judge, at which she also was represented by counsel, the wife contended both that the care home business should be transferred to her by means of a transfer to her of the husband’s shares in the company and that the matrimonial home should also be transferred to her, in both cases subject to their commercial borrowings but on the basis of the elimination of the company’s indebtedness to the husband. Notwithstanding the husband’s opposition, the district judge acceded to the wife’s suggestion that the business, and thus the company, should be transferred to her and that the company’s debt to the husband should in effect by eliminated by an order that the husband should pay her a lump sum in an equivalent amount. But he declined to award the matrimonial home to her and instead directed that it should be sold and that she should have the first £100,000 of the net proceeds and that the husband should have the balance, thus estimated at £174,000.

There were three commercial loans taken out by the company, two of which were secured upon the matrimonial home and the other of which seems to have been guaranteed by the husband personally; and inevitably, and in principle uncontroversially, the district judge provided that, in that the wife was taking over the business, she should take steps to release the husband, directly or indirectly, from any responsibility for the three loans, including therefore procuring release of the home from the encumbrance referable to two of them. The circuit judge found that the terms which the district judge had imposed for the wife’s refinancing of those loans had been rather fierce and one-sided in favour of the husband, in particular in respect of the time given to her for procuring release of the security upon the home. In his judgment the circuit judge dwelt at some length upon that matter. I agree with Mr Sternberg that, had that been the only error in the district judge’s order and even assuming that it was an error of appealable proportions, the severity of collateral directions of that character could never have justified the substantial changes which the circuit judge favoured. But there was much more to the wife’s appeal than was reflected in that feature.

Shortly after the decision of the district judge the wife decided that, notwithstanding that she had fought hard for a transfer of the business, she would not be in a position to continue to run it. Accordingly, at a preliminary hearing for directions before the circuit judge in August 2006, she agreed with the husband that the company should sell the business and then be wound up. One of the wife’s arguments before the circuit judge was later to be that there had been a dramatic decline in the fortune of the business immediately following the district judge’s order; but she failed to persuade him that any such decline had been substantial or permanent. Quite why the wife belatedly decided to submit to sale of the business is not entirely clear to me but the circuit judge said in judgment:

It should not be forgotten also that the wife’s agreement in August to a sale of the business was precisely in accordance with the contentions of the husband before the district judge. At all events the agreement to sell the business seems to me, by itself, to have changed the landscape from that surveyed by the district judge and to have required substantial reformulation of the nature of the provisions to be made for the wife. There became no point in a transfer to the wife of the husband’s shares in the company and no point in the elimination of the company’s liability to the husband by means of a counteractive lump sum in favour of the wife. It also followed that the district judge’s estimate of the income which the wife might be expected to generate from the business, namely £60,000 per annum were she not to employ a manager or £40,000 per annum were she to do so, had become beside the point; and in this regard it is relevant to note that before the district judge Mr Sternberg had contended that, outside the business, the wife’s earning capacity was at least £20,000 per annum. Provision of an entirely character had to be made for the wife. Should it nevertheless, as Mr Sternberg has argued to us today, have followed the tramlines of the district judge’s order in terms, if not of the character of the assets, at least of the value of the assets to be transferred to the wife?

The circuit judge held that he should not follow the tramlines set by the district judge even in terms of the value of the provision for the wife. The circuit judge’s order was that the husband should transfer the matrimonial home to the wife subject to its first mortgage; and should also, in two instalments upon sale of the business and liquidation of the company, pay her a lump sum of £140,000, subject, in the case of the second tranche, to specified increase or decrease in the event that the net return to shareholders on liquidation proved to be more or less than the sum of £170,000 upon which the district judge had proceeded. The effect was, therefore, that the husband was to receive both the estimated balance of £30,000 out of the liquidation and repayment by the company of his loan of £90,000. As before the district judge, so before the circuit judge there was also agreement that a pension policy built up by the husband during the marriage, with a current value of £66,000, should be transferred to the wife, she having no other pension provision. On that basis there were left to the husband pension provisions, basically built up by him prior to the marriage, with a current value of £208,000.

The basis of the proposed appeal to this court, and the basis for the contention that it raises an important point of principle or practice, is that the circuit judge in effect disregarded the effect of the decision of the House of Lords in Piglowska v Piglowski [1999] 1 WLR 1360. That was a case in which the House of Lords stressed the high degree of respect with which an appellate court should approach a first instance decision upon an application for ancillary relief. In fact, however, the circuit judge went out of his way in judgment to remind himself of central passages in the leading speech of Lord Hoffmann in Piglowska and of the now limited appellate jurisdiction even of circuit and high court judges hearing appeals in proceedings for ancillary relief from district judges such as is provided by Rule 8.1(3) of the Family Proceedings Rules 1991, namely that the appeal now proceeds by way of review and thus can be allowed only in the limited circumstances which have always applied to appeals to this court from discretionary decisions.

Was the whole restructuring by the circuit judge of the provision for the wife permissible? Mr Sternberg argues that, notwithstanding the necessary changes flowing from the agreed decision to sell the business, it was not permissible. The circuit judge held, by contrast, that it was permissible; and he identified what he regarded as substantial errors in the district judge’s approach, particularly in the crucial paragraph, namely paragraph 58, in which the latter surveyed the net effect of the order which he was proposing to make.

In my view the circuit judge was not only entitled but correct to identify serious errors of computation which had crept into the reasoning of this highly respected district judge.

First, the district judge had earlier noted that the wife had liabilities, other than directly related to costs, of £50,000 and that the husband had such liabilities of £18,000. It is clear that, when he did his crucial final calculations, the district judge omitted to factor these respective liabilities into his calculations. Mr Sternberg argued to the circuit judge, and would argue to this court, that, in that the district judge had noted the liabilities, such was sufficient and that he had no need to refer to them again at the point of his conclusion. He has also pointed out to us today that the district judge found that the wife had a substantial borrowing capacity and suggests that he must, in effect, have written off the wife’s liabilities of £50,000 against the facility for her to earn in the future a sum which would eliminate that indebtedness. I have never, in my experience of these cases, heard of a practice, which would seem to me to be entirely contrary to principle, of ignoring liabilities by reference to future earnings. In my view it was essential for the district judge, in conclusion, to look at the net effect of his proposed dispositions, in particular therefore upon the basis that, insofar as there were liabilities, they were duly set against assets before any calculations and comparisons were undertaken.

Second, the district judge had earlier noted that, in respect of costs, the wife’s were estimated at £44,000, of which she had paid £21,000 on account, and that the husband’s were estimated at £57,000, of which he had paid £40,000 on account. The district judge had specifically upheld the contention of counsel then appearing for the wife that costs paid by each party on account of costs should be notionally added back into the assets of each, in order to even out the imbalance which the husband’s larger payment on account of costs would otherwise have caused. It is not at all clear to me that, when he made his concluding survey, the district judge effected the adding back which he had earlier favoured. Then, however, as the circuit judge pointed out, the district judge did not anywhere in his judgment address how, following the notional adding back, he should treat the respective liabilities for costs. There were two alternatives: to make no deduction at all in respect of them against the assets of each party or to make a 100% deduction of them in each case. Mr Sternberg argued to the circuit judge, and would argue to this court, that it would be an error of principle, even if contrary to his argument the payments on account of costs should have been added back, for all the costs then to be deducted from the assets of each party. In particular his argument was, and would be, that, prior to the district judge’s survey of any Calderbank correspondence, he would be unable to discern upon whom the burden of costs should fall and thus that, at the stage of substantive judgment, they had to be left out of account altogether. The courts have certainly followed that approach in cases of more substantial wealth; but, in my experience, they have recognised that it may be a dangerous course not to deduct all the costs where money is so relatively scarce as to make the ultimate burden of them one which might destroy the court’s essential rationale for its proposed orders. At all events, so it seems to me, the circuit judge, having rightly perceived error in the district judge’s failure to carry forward his earlier ruling in respect of costs, was in a fortunate position of being able for himself to choose whether it would be appropriate to deduct none of the costs, or all of the costs, on each side; and in that regard it was clearly relevant for the circuit judge to note that in the event the district judge had made no order for costs between the parties and that it was not contended upon appeal on either side that such provision should be changed. Thus, in my view, the circuit judge was properly emboldened to hold that the district judge should have made a deduction on each side of all the costs then owing by each: by setting off the addition back of costs paid against the deduction of all costs then payable, the circuit judge thus properly concluded that the district judge had wrongly failed to deduct £23,000 from the wife’s assets and £17,000 from the husband’s assets.

But there was a still more substantial error in the district judge’s crucial paragraph. For he had concluded that his proposed orders would leave the husband with about £805,000 and the wife with about £424,000 and that such represented a division of almost precisely two thirds to one third. In the light of his earlier observations about the size of the husband’s pre-matrimonial assets and the relative shortness of the marriage, it is clear that he regarded such a division to be fair. The circuit judge observed that, had the district judge in fact made a division in such proportions, his order would indeed have been unappealable. But he held that, in the respective figures to which I have referred, the district judge had fallen into error. The circuit judge held, and today Mr Sternberg accepts that he cannot quarrel with the circuit judge’s holding, that the district judge had included in the total of £424,000 referable to the wife the sum of £66,000 representing the value of the pension to be transferred to her but had failed to include in the total of £805,000 referable to the husband the sum of £208,000 representing the value of the pensions to be left to him.

In the above circumstances I can see no possible ground upon which the husband can complain that the circuit judge was wrong to interfere with the district judge’s order in the way in which he did. First there was the inevitable interference with the structure of the district judge’s dispositions caused by the change referable to the business. Then there were the computational errors of the district judge, which, in my view correctly, the circuit judge identified as having led the district judge to make an award to the wife not of about 33% of all the assets, which he had apparently intended, but of 26.57% of them or, even were pension assets to be excluded, of only 0.63% more than that. The circuit judge calculated that it was not the district judge’s award, but his, the circuit judge’s, award, which would come near to fulfilling the district judge’s aspiration of awarding to the wife about one third of the assets. The circuit judge calculated, and again Mr Sternberg does not challenge the arithmetic, that his disposition awarded to the wife 30.61% of all the assets or 32.31% of the non-pension assets.

In my view the circuit judge was bound to interfere with the district judge’s order and the way in which he did so could not be reasonably challenged in this court. In quantified terms his award to the wife amounted to about £408,000; and, in the light of her need for accommodation and income, particularly in retirement when the pension transferred to her would be likely to make only the most modest contribution to her maintenance needs, such seems to me unchallengeable in this court. The husband complains in particular that the matrimonial home was ordered to be transferred to her in circumstances in which it had a net value of £274,000 but in which the district judge had identified the housing requirement of each party as being in the sum only of £200,000. But, in that the husband apparently had no aspiration to resume living in the home, there was in my view no vice in awarding the home to her, even though it had a value above what the wife needed for accommodation, as being part of her overall award, namely an asset which, as the circuit judge observed, she could sell “sooner or later” and from which she could then generate some liquid capital. Mr Sternberg tells us today that the wife has now expressed an aspiration to sell the matrimonial home. Although thus expressly foreshadowed by the circuit judge, this development is said to be a further source of grievance for the husband. I suspect that there he has an eye to the likely increase in the value of the home above that presented to the district judge; if so, he might do well to have his other eye upon the likely increase in the value of the property in Sunningdale.

Mr Sternberg also tells us that the company has now recently achieved sale of the care business and that there would be evidence adduced in this court, were such to be permitted on appeal, that the net proceeds of the liquidation for the shareholders are likely to be less than the sum of £170,000, indeed perhaps only about £140,000. In my view the circuit judge catered for this eventuality impeccably: he was, in my view, right to reject Mr Sternberg’s request for a substantial adjournment of the hearing of the wife’s appeal so that the results of sale and liquidation could be established and instead he provided that the second tranche of the lump sum payable to the wife should reduce (or increase) by 32.31% of any such shortfall (or excess). He thus preserved the fractional division favoured both by himself and, as it happens, the district judge against the effect of any such contingency; clearly also the husband is in a far stronger position to withstand the effect of the allegedly disappointing return than is the wife.

Mr Sternberg, but for the first time today, complains about the judge’s favouring of the mechanism for adjustment of the lump sum in the proportions of 32.31% and 67.69% so as to allow for a lower (or higher) figure for the return to shareholders upon liquidation of the company. There is no complaint about that mechanism in the Notice of Appeal; nor is there any such complaint in either of the skeleton arguments which Mr Sternberg has filed for the use of the court. This leads me to harbour the suspicion the suspicion that the husband was perfectly happy with the mechanism for allowing for shortfall or excess while he thought that the result might be excess rather than shortfall; but that now, so we are told, it is likely to be shortfall rather than excess, he asks Mr Sternberg to see whether he can interest us in a challenge to the propriety of the mechanism.

Apart, however, from whether the proposed appeal has a reasonable prospect of success, how can Mr Sternberg make good his argument that it raises an important point of principle or practice or otherwise compels a substantive hearing? I have already rejected the complaint that the circuit judge acted in breach of the limitations upon his jurisdiction; and the only other allegedly important point raised by the appeal is a complaint that the award of the circuit judge to the wife represented virtually 100% of the matrimonial assets. Mr Sternberg has not in his admirable skeletons set out the precise calculations which lead to that conclusion but, in the light of the considerable relative size of the husband’s pre-matrimonial assets and, in effect, the clear need of the wife for an award of about the size favoured by the circuit judge, I perceive no such error of principle.

Finally I should advert to the husband’s complaint that, by a supplementary judgment, the circuit judge directed that there should be no order as to the costs of the appeal as between the parties. A challenge to this order would not, of course, be a second appeal but it would need to overcome the broad discretion invested in the circuit judge as to costs. By his supplementary judgment the circuit judge made criticisms of the husband’s solicitors and of Mr Sternberg, without notice to them, in terms which, for reasons which I understand, they regard as unfair and, so they contend, in breach of the rules of natural justice and by way of infringement of their rights under Article 6 of the European Convention on Human Rights 1950; but it is important to bear in mind that an appeal to this court can be mounted only by reference to arguable grievances in legal terms harboured by parties rather than by their advisers. In that the wife was acting in person upon the appeal to the circuit judge, it fell to the husband’s side, for example, to incur the costs referable to the preparation of her appeal in terms of bundles for use by the judge; and in terms of the collection of further evidence, particularly related to the fact that now, by agreement, the business was to be sold and the company liquidated, both being new features of no little complexity. Then again, following dissemination of the judge’s substantive decision, it fell to Mr Sternberg himself, at the judge’s own request, to make the first draft of the complex order apparently reflective of the circuit judge’s decision. The district judge had himself questioned the levels of costs then incurred on each side, which I have already specified; and in his judgment, the circuit judge observed that the district judge’s criticism of costs had, it seemed, fallen somewhat on deaf ears in that the husband’s costs had increased by £24,000. I agree with Mr Sternberg that, unless a judge can accurately discern why a case has not been compromised -- and indeed the district judge had been severely critical of the wife’s hostile and uncooperative stance towards the husband in the litigation, it may be dangerously unfair for him to criticise increase in costs, particularly when the other party is in person and so the preparatory works fall unusually upon the represented side. The judge even criticised the level of Mr Sternberg’s fees and the briefing of counsel as senior as him; but this was a particularly complex appeal, which in my view merited the briefing of counsel of the calibre of Mr Sternberg. Everything suggests to me that, without Mr Sternberg’s assistance, even the circuit judge might well, through no fault of his own, have been floundering.

All that said, however, there were a mass of reasons why it was appropriate or at least within the range of his discretion for the circuit judge to make no order as to costs. The fact is that, following the agreement to sell the business, there had to be a substantial reformulation of the provisions made by the district judge; and yet no proposal of settlement in Calderbank form was ever made by the husband to the wife. I note that even in that regard the circuit judge observed that “the husband and his advisers” should have realised the need for reformulation by making a proposal in Calderbank form; but, as Mr Sternberg points out to us, the judge was not privy to what passed between the husband and his advisers, who could not act otherwise than in accordance with his instructions, with the result that, in this regard also, adverse criticism of the legal advisers was dangerous and may well have been misplaced. But, whatever the advisers advised, the fact is that the husband did not instruct the sending of a Calderbank proposal to the wife and, to that extent, his platform for complaint in respect of the costs which he had expended was less sound than it might have been. Equally I consider that the computational errors of the district judge were obvious and substantial and that, for that reason too, the husband should, at least in Calderbank form, have recognised the need for uplift in the overall quantum of the award to the wife. Although a number of her grounds for appeal failed, the fact is that she did have solid grounds for appeal, as a result of which it was allowed; in those circumstances, while her own application for costs, as a litigant in person, was not upheld, there is in my view no potential for this court to interfere with the circuit judge’s disposition that each side should bear its own costs of the appeal.

For those reasons I would refuse the husband permission to appeal.

I agree.