Hvorostovsky v Hvorostovsky

Dimitri Hvorostovsky (hereafter the husband) is a world renowned Russian baritone with a wide-ranging repertoire. His career began in the State Theatre in Krasnoyarsk, a substantial provincial town in Siberia.

His first wife Svetlana (hereafter the wife) was in the Corps de Ballet in the same area. They married in 1989. Svetlana had a child of a previous relationship, Maria, who is now aged 26. The husband always treated her as a child of the family.

As the husband’s career burgeoned the family moved first to Moscow and then, in 1994, to London.

In 1996 their twin boys were born. When they were some 3 years of age the marriage broke down, the husband leaving the family home in June 1996. The family home was in Islington and it is clearly a desirable property, now worth over £1million.

Divorce proceedings followed the separation, a decree absolute being pronounced on 2^nd February 2001. A few days prior thereto the parties and their legal teams assembled for the contested ancillary relief proceedings. The wife was represented by Mr Jonathan Cohen QC and the husband by Ms Lucy Stone QC. These experienced leaders guided their clients to a compromise. The husband ceded the matrimonial home and thus over 80% of the available capital, to the wife. However, he effectively used what became the wife’s sole property as security for an advance of £90,000, that being part of a repayment mortgage, the whole of which the husband was to service and repay within the periodical payments that he was to make to the wife.

Although the parties were ordinarily resident in this jurisdiction they were not domiciled here and a substantial proportion of the husband’s fees were earned abroad. Thus with the aid of expert advice it was agreed that in the year 2001 the husband would provide the wife a budget of £113,000 for herself and the children. In the year 2002 her allowance was to increase to £117,000 plus RPI plus any increase in school fees.

In 2001 the wife’s allowance for the household amounted to £98,150 after stripping out school fees and Maria’s tuition fees at university.

In order to avoid UK income tax the annual allowance was paid monthly from an off-shore bank account in the husband’s name into an off-shore bank account in the wife’s name. So there was no order for periodical payments. The husband’s obligations were recorded in an agreement endorsed on counsels’ briefs.

Eight years on from the crafting of this scheme the wife continues to live in the final matrimonial home. She has neglected its maintenance and expert surveyors eventually agreed that it could be put into good order at a cost of £86,000. The wife has never worked since abandoning her career for the marriage. She speaks basic English but in legal proceedings requires an interpreter. She looks after the twins, now 12 rising 13, and they go to a local fee paying day school. Maria has graduated, has a job earning about £26,000 a year and lives rent free in the basement flat in the matrimonial home.

Turning to the husband, his career has gone from strength to strength. Whilst in 2001 he was grossing about £552,000 he currently grosses about £1.86 million per annum, an achievement which appears secure for the immediately foreseeable future.

Following the completion of the divorce proceedings, the husband married again. There are two children of his second marriage, a son born in July 2003 and a daughter born in July 2007. Both the husband and the wife are now in their mid to late forties.

With the passage of the years the wife understandably sought an uplift. Although initially some additional sums were paid by agreement on 18^th day of October 2006 she issued an application seeking an increase. The application came for trial before His Honour Judge Michael Horowitz QC over three days in July 2008.

Although the application was framed as an application for periodical payments, at trial it was treated as an application under section 31 of the Matrimonial Causes Act 1973. Mr Cohen QC so presented his case and Mr Charles Howard QC, now acting for the husband, framed his response on the same footing. However the order of 30^th January 2001 provided:

“The Petitioner’s claims for periodical payments for herself and the children of the family and secured periodical payments for herself and the children of the family and secured periodical payments do stand adjourned generally with liberty to restore.”

Thus, in my view, the wife, dissatisfied with an outworn agreement, had two available remedies. The first was to seek the determination of her claim for periodical payments generally adjourned with liberty to restore. The second was to seek the variation of the maintenance agreement under section 35 of the 1973 Act. However, although an application under section 31 would have been, in my opinion, inapt, the point has only technical relevance since a determination under section 31 imports the criteria that determine an application under section 25.

His Honour Judge Horowitz circulated his draft reserved judgment on 22^nd August 2008 and, after a further hearing to determine back dating and costs, his order was dated 30^th October.

The wife was dissatisfied with his award and on 7^th November filed her Notice of Appeal. On 2^nd January 2009 Lord Justice Wilson granted permission to appeal the quantum of the periodical payment orders to herself and to the children but refused her application to appeal issues arising out of the supplementary judgment dealing with backdating and costs.

Judge Horowitz’s conclusion is easily recorded. He fixed the wife’s periodical payments at £120,000 with £12,500 to each of the twins. School fees and extras were agreed to be paid by the husband direct. Thus the net cost to the husband of maintenance and education of his first family amounted to £170,000 per annum. Since this can only be met from income remitted to this jurisdiction it will now attract United Kingdom income tax. Assuming that tax will be levied at 40% the gross sums that he must remit to meet the order amount to £285,000 per annum.

I turn now to see how the judge calculated and detailed his conclusion.

With admirable clarity he first recorded the background. He then reviewed the evidence, making findings on a number of issues which do not bear on the outcome of this appeal.

He then reviewed the impact of the 2008 Finance Act on the family in so far as it introduced a new regime for non-domiciled residents.

The judge then approached the crucial issues first with an impeccable review of the authorities and then by recording the rival submissions of counsel.

First he recorded Mr Howard’s position which amounted to a net increase for the wife of £22,000. He rejected Mr Howard’s approach explaining himself essentially in the following sub paragraphs:

“(i)

There has been here a career handicap and translation from country of birth and family. I reject as simplistic Mr Howard’s submission that by the events of this marriage she has done no more than exchange a (notional) secretarial job in Russia for the opportunity of a secretarial post in London. That is an over-reductionist description of the course of her life has taken in moving with her husband and his career.

(ii)

Needs is an elastic concept as Lady Hale explained in Miller/McFarlane to be applied at the very least on a generous basis which is not, I find, in Mr Howard’s scrutiny. I have held the figure for a car reasonable. Holidays are currently extremely modest at £4,000 for a family visit to Club Mediterranee and a visit to Rome. Redecoration is a real need better labelled an income obligation which Mr Howard artificially ascribes to capital. The point that the wife’s Budget provided for maintenance is a bad one. First the assigned sum is only£2004 and, better, it is in the Schedule to the wife’s Form E which totals £167,000, a sum she did not receive.

(iii)

The authorities I have cited, as Mr Howard himself accepts, allow and have applied a compensation element in a variation case where justified and appropriate. To exclude compensation as only available and applied at exit, in Mr Howard’s phrase, is in my judgment too nice a distinction. Even if he is right, the right analysis is that this wife was provided with the house and an income package to service and pay off the mortgage so Mr Howard’s 2 step process removes part of that compensation;

(iv)

The point can be stretched further: arguably as it seems to me, if compensation and sharing are notionally and (pre- Miller/McFarlane) to be read back into the Order made in 2001, it was provided as a package made of capital and income so that while that does not mean updating income provision pro rata with the husband’s later acquired wealth, it does not mean reducing the wife’s standard of living when the husband’s has increased. It is not necessary specifically to factor in compensation as a specific and isolated element of the Order provided it made on a generous basis unrestricted by purely budgetary consideration. I thereby, respectfully, adopt and apply the approach of the President in VB v JP [2008] 1 FLR 742”

The judge then set out Mr Cohen’s closing position in paragraph 71 of his judgment as follows:

“Within those figures, Mr Cohen includes a repair/renovation element. He points to the need for the wife to make her own contingent pension provision. I accept in broad terms the relevant inclusion of both those items. Mr Cohen in broad brush strokes defined her true budget as £175,000 plus £17,500 per child excluding school fees. The right figure for the wife was he submitted, £240,000 which was appropriate because:

The judge’s response to Mr Cohen’s closing submission appears to be supportive in principle but not in degree as appears from paragraphs 72-74:

“72.

I agree and accept the inclusion of a renovation figure which, amortising 10 years of neglect must run at no less than £7-8,000 a year. A margin for savings or capital via insurance or pension provision is appropriate although no figures or quotations were put before me. I observe that Potter P adjudicated in the detail between the rival contentions for the budget in VB no doubt because the wife’s actual/proposed expenditure was so hotly contested. Baron J took a broader approach in Lauder in re-casting a finding of £35,000 by the District Judge topped up by £5,000 to £40,000 to £60,000 in what was a Duxbury commutation case. But on principle derived from the authorities, I respectfully consider that the essence of broad and generous provision is not intended to be the simple addition of careful budget plus arbitrary but identifiable margin of generosity.

73.

I agree and accept that the husband’s high earnings and significant increase is relevant. It is even higher than the husband’s net income in VB.

74.

But I cannot reach Mr Cohen’s figures. The total is too high having regard to the likely incidence of taxation; the fact of the husband’s other obligations and the uncertainties of a performing artist’s life. The margin of generous uplift is of a higher order than I identify in the authorities. The amount sought is not justified by the length of the marriage or the time elapsed since its breakdown. The figures put to me by Mr Cohen, are so high and above budget in my judgment, as to bring his claim within range of Mr Howard’s attack on indirect capital accumulation.”

The factors that led the judge to conclude that Mr Cohen had pitched his case too high do not, in my judgment, bear the weight that the judge gave them. Clearly the incidence of UK tax, the husband’s obligations to his second family and the length of the marriage were appropriately weighed. However I find the uncertainties of a performing artist’s life and the time elapsed since the failure of the marriage hardly affect quantification. As to the first the judge had made this finding in paragraph 33:

“Mr Hvorostovsky hoped he could sing for another 10 years. He agreed that he had a versatility most singers do not possess which was likely to extend his career. In my judgment he can be reasonably confident that his charm and pride in his musicianship will keep him at the forefront his talent richly deserves for a number of years.”

As to the second, it was simply a neutral circumstance of the case that the wife had suffered two or three years to pass before issuing her application.

The crucial paragraph in the judgment is paragraph 75 in which the judge announced his conclusion in the following terms:

“The wife’s Budget attached to her Affidavit sworn 3 July totals £13,770 pcm or £165,250 per annum corrected to allow for an error of double counting and updating school fees to £12,626.95 pm or £151,524 pa. Extracting school fees simple there stated of £23,520 per annum and direct children expenses of (£1,220 x 12 = £14,640) produces £112,541 pa exclusive of repairs. However, that incorporates indirect childrens’ expenses as may be demonstrated by the fact that neither party contends for only c £7,320 for each child. It would be more accurate to take the wife as contending for a strict personal budget of c£120,000 per annum inclusive necessarily on her presentation of an element of indirect childrens’ costs. For that reason and because without strictly considering each item as was not done in evidence save to query car and mortgage, I find this constructed schedule too high, I reduce it to £100,000 – a deduction which allows as broadly as I can for the childrens’ element in her £120,000 figure. But re-introducing an allowance for repairs and adopting a generous approach takes me back to £120,000 to which I add £12,500 per child thus arriving at a total of £145,000 per annum payable monthly.”

This is a puzzling paragraph. Neither counsel could explain how the judge moved from the figure of £112,541 in the second sentence to the figure of £120,000 in the fourth sentence. The first figure had stripped out direct childrens’ expenses and was inclusive of indirect childrens’ expenses. In the fourth sentence the judge seems to reduce £120,000 to £100,000 to strip out some inflation in her budget together with indirect childrens’ expenditure. I see the logic of stripping out indirect childrens’ expenditure which he intended to include in separate orders to each child. However I do not understand why the total budget for reduction was £120,000 rather than £112,541. The further stage by which the judge climbed back to £120,000 seems to me to be transparent. In paragraph 72 he had quantified the allowance for repairs at £7,500, to take the middle figure. Accordingly the mark up for generosity must have been £12,500.

The judge’s order of £12,500 per child appears to me to be low. We do not know and cannot now extrapolate what figure the judge put on indirect childrens’ expenditure, that is to say all the costs of home, household and holidays born by the primary career. As a generality £12,500 seems to me a low figure given the extent of the father’s income and the high standard of living that all his dependents enjoy. However it seems that both counsel directed their submissions to one global target. Neither called evidence that would enable the level of child periodical payments to be more profoundly assessed. When we enquired whether the twins have holidays and other staying contact with the father, neither counsel offered an answer.

Mr Cohen’s basic submission on appeal was that the judge had directed himself impeccably as to the proper approach and that his factual findings could not be criticised. It was in the application of the authorities to the facts as he had found them that the judge failed. He had found that the wife had moved to London to promote her husband’s career. She was incapacitated by her commitment to the children and by her lack of qualification and her poor English from developing her independent career. This was relationship-related disadvantage, for which she was entitled to compensation. Although the judge had found this element of relationship-related disadvantage, he had then failed to inject any compensation into his award. He had expressly given the wife nothing beyond some generosity in the assessment of her budget. Thus Mr Cohen challenged not the judge’s exposition of the law but his application of the law.

Mr Howard, in a vigorous submission, emphasised that on divorce the husband had effectively handed all his accumulated capital to the wife. He was faced with the challenge of replenishing capital from future earnings. Such entitlement as the wife had to both sharing and compensation for relationship-related disadvantage had been fully reflected in the order on divorce. Accordingly the judge had correctly identified that her application was to be determined by needs, albeit generously assessed. There was simply no principled basis for the wife to claim a share of the income surplus after the husband had met the needs of both families.

Mr Howard further stated that in 2001 she had advanced a budget of £167,000 per annum but had accepted £113,000 per annum in order to gain the lion’s share of the available capital. It was significant that on the present application in her Form E she advanced a budget of £148,000 per annum.

Mr Howard accepted that in broad terms the wife’s income for herself and the children under the 2001 settlement amounted to approximately 30% of what the husband was then earning whilst the judge’s order left her with approximately 20%. However that was not to compare like with like. In 2001 the wife’s budget included a nanny for the twins and Maria was then dependent. Stripping those elements out the true comparison was about £79,000 for the household in 2001 as against £145,000 by virtue of the judge’s order. There were many other factors that justified the percentage reduction. The husband is at the zenith of his career but it will be a short zenith. He has no pension provision. His youngest child is still a baby. He has two dependent wives. On the facts of this case it would be almost ridiculous to suggest that the wife had sacrificed a career. The marriage had simply coincided with her inevitable departure from the Corps de Ballet.

There are only two possible conclusions. Acknowledging that the judge’s award was undoubtedly low, and unexpectedly so given the number of points that he recognised went in the wife’s favour, we might hold that it fell nevertheless within the generous ambit of his discretion. Alternatively we might conclude that the judge’s shot has failed to clip the target’s outer ring. I prefer the second alternative for a number of reasons:

Having regard to the need for proportionality, I would increase the wife’s periodical payments ordered to £140,000 per annum and the child orders to £15,000 per annum. The overall gain for the wife in this appeal will then be £25,000 per annum or twice the judge’s allowance for generosity. That conclusion leaves the wife with an estimated surplus of some £37,500 per annum over and above her assessed needs. Plainly she has a responsibility to the husband to operate a prudent economy. Plainly she must maintain her home in good order. She must also anticipate the future fall in the husband’s fee income. Quite apart from expert advice as to ways and means of providing for that future she has the ordinary entitlement to invest in ISAs.

In 2001, in the aftermath of the decision of The House of Lords in White v White [2000] 2 FLR 981, Mr Justice Charles in the case of Cornick v Cornick (No.3) clearly stated a rule of fairness, namely just as an income fall justifies an application for downward variation, so an income rise justifies an upward variation. In neither case is the outcome bounded by the family’s standard of living immediately before the breakdown. As Mr Justice Charles said:

“It is therefore logical that a payee is not precluded from deriving benefit from an increase in the payer’s fortunes even if this results in the payee enjoying a higher standard of living than she or he did during the marriage.”

He then developed the proposition in the following paragraph:

“In my judgment, just as it is on the first application for orders for financial provision, White v White is clear authority on an application for variation (and for an order for a lump sum on a discharge or a variation of a periodical payment) for the following points, namely that (a) the court should not rely on the judicial concept of ‘reasonable requirements’ as a determinative or limiting factor in cases where a payer has, or acquires, an ability to pay more than the payee’s financial needs even when they are interpreted generously and called ‘reasonable requirements’, and (b) the court should exercise its discretion by applying the words of the statute.”

I am in complete agreement with those propositions and with the reasoning of Charles J (I see that Baron J at paragraph 54 of her judgment in Lauder v Lauder [2007] 2 FLR 815 thought that in the later case of Pearce v Pearce [2004] 1 WLR 68 I had disagreed with the proposition cited above. It was only with the further propositions developed by Charles J in paragraphs 117-118 that I disagreed). In my judgment there is much to be said for trial judges continuing to direct themselves by reference to paragraphs 105 and 106 in Cornick v Cornick (No.3) and to eschew sophistication that has crept in to the territory of Section 31 since the decision of the House of Lords in Miller v McFarlane [2006] 2 AC 618. The subsequent authorities have been carefully and clearly reviewed by The President in his decision of VB v JP [2008] 1 FLR 742 at paragraph 59 as follows:

“[59] In my view, there emerge from the post-Miller; McFarlane authorities to which I have referred the following propositions in elaboration of, but consistent with, the House of Lords decision. First, it is at the exit of the marriage and in relation to the division/redistribution of the family assets that the consideration of the element of compensation immediately arises, but as a feature of the concept of fairness rather than as a head of claim in its own right. Second, on the exit from the marriage, the partnership ends and in ordinary circumstances a wife has no right or expectation of continuing economic parity (‘sharing’) unless and to the extent that consideration of her needs, or compensation for relationship-generated disadvantage so require. A clean break is to be encouraged wherever possible. Third, in big money cases, where the matrimonial assets are sufficient for a clean break to be achieved, a wife with ordinary career prospects is likely to be have been compensated by an equal division of the assets and consideration of how the wife’s career might have progressed is unnecessary and should be avoided. Where, however, that is not the case and the parties accept or the court decides that fairness can only be achieved by an award of continuing periodical payments in respect of a wife’s maintenance, then the matter of compensation in respect of relationship-generated disadvantage requires consideration, again as a strand or element of fairness. Fourth, in cases other than big money cases, where a continuing award of periodic payments is necessary and the wife has plainly sacrificed her own earning capacity, compensation will rarely be amenable to consideration as a separate element in the sense of a premium susceptible of calculation with any precision. Where it is necessary to provide ongoing periodical payments for the wife after the division of capital assets insufficient to cover her future maintenance needs, any element of compensation is best dealt with by a generous assessment of her continuing needs unrestricted by purely budgetary considerations, in the light of the contribution of the wife to the marriage and the broad effect of the sacrifice of her own earning capacity upon her ability to provide her own needs following the end of the matrimonial partnership. These considerations are of course inherent in s25(a) (b) (d) and (f) of the 1973 Act.”

However the present case illustrates what seems to be almost a departure from reality in the presentation of the rival submissions. Was an endeavour to assert a relationship related disadvantage really necessary? The exercise consumed endless pages of written submissions. But the reality was that the wife had given up her career only shortly before its natural close. The suggestion that she was an exile in some foreign land seems to me far fetched. There was no evidence that she disliked Islington or her life here. When the marriage broke down in 1999 she could have returned to Russia. Had she wanted to improve her English or to pursue a qualification she had the means to do so. There was no evidence that she had made any sacrifice. She may have been well pleased that her husband’s career liberated her from her background. Whatever she gave to him and to the children is aptly assessed under the heading of ‘contribution’. That, rather than relationship-related disadvantage is the language of the statute.

Of course compensation for relationship-related disadvantage may be a very important ingredient in many cases, particularly in the assessment of the original division of capital and foreseeable income. If reflected at that stage it will find its continuing reflection on a variation hearing without fresh assessment.

This seems to me a paradigm variation of an original division of capital and anticipated future income. The wife is a whole life dependent. The fundamental changes of circumstances that must be weighed in the judgment are the changes in the wife’s budgeted needs and the changes in the husband’s circumstances, here principally his hugely increased earnings and a newly acquired second family. The exercise must be guided by the language of the statute. The single factor of greatest significance is the husband’s greatly increased income.

For all those reasons I would allow the appeal increasing the three periodical payment orders as already indicated.

Mr Justice Bodey: I too agree. As one who normally hears these cases at first instance I particularly echo what Lord Justice Thorpe says in the closing paragraphs of his judgment. There are of course cases where a concise analysis of the identified concepts of ‘needs, contributions and sharing’ is a necessary and helpful intellectual tool in written or verbal or argument, provided these concepts are not elevated to the status of heads of claim. However (because ancillary relief cases tend to be fact-specific and depend essentially on the exercise of a broad discretion in the pursuit of fairness) there are also many cases where a lengthy over-sophisticated approach of this type is an unnecessary diversion, which burdens rather than assists the court. This may be particularly so as regards variation applications, given the clear authorities on the topic cited by my Lord.

Lord Justice Etherton: I agree