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Compensation for relationship generated disadvantage in financial remedy proceedings: RC v JC [2020] EWHC 466

Home » International Family » Compensation for relationship generated disadvantage in financial remedy proceedings: RC v JC [2020] EWHC 466

Sarah Tyler is a specialist family law practitioner and acts in both public and private law children cases. Her public law work involves advising local authorities, parents, grandparents, NYAS case workers and guardians.

In this blog she takes a look at compensation for relationship generated disadvantage, particularly in the case of RC v JC [2020] EWHC 466.

Successful claims for compensation for relationship generated disadvantage are rare. In this case, heard by Mr Justice Moor in February but reported at the beginning of May, the Court was satisfied that there was such a disadvantage, sufficient to justify a claim for compensation.

What is relationship generated disadvantage? Simply put, it is where one spouse gives up or significantly hinders their career prospects and future earning capacity and potential, usually in order for that person to provide more of the care to their children and leave the breadwinner “relieved of the day to day responsibility for their children” (per Lord Nicholls at para 92 of Miller/McFarlane [2006] UKHL 24).

The stresses and strains on working parents are well known, as are the almost daily debates between partners as to who should be the one to leave a meeting early to collect the children from childcare. For many, the costs of nursery or a nanny outweigh the comparative benefit in earned income, leading to one party either ceasing work or significantly reducing their hours. These cases come across our desks daily. However, and as Mr Justice Moor was quick to point out, compensation claims of the kind argued here are infrequent [§36] “primarily, because, even if there is sufficient evidence of loss, a respondent can either argue that the applicant would never have been able to earn as much as they are going to be awarded from their share of the marital assets or that the assets and income are insufficient to do more than cover the parties’ needs.” There simply isn’t enough in the pot to be able to satisfy any compensation claim after needs and sharing have been considered.

Mr Justice Moor went on to say “I remind myself that an earning capacity is not capable of being a matrimonial asset to which the sharing principle applies. A spouse is not, therefore, entitled to share it going forward (Waggott v Waggott [2018] EWCA Civ 727). If I take the view that the Wife has satisfied me that there was relationship generated disadvantage, I am clear that I must comply with section 25A and see if I can reflect that disadvantage fairly within the capital division such that a clean break can still be achieved.”

To the facts of the case: the husband (H) was a solicitor and partner in a magic circle law firm in the litigation department. The wife (W) was also a solicitor, but had not practiced for some years and is currently a housewife and homemaker. The wife was a trainee at the same law firm as the husband. She qualified as a solicitor in 2001, the relationship commenced in 2002/2003 and shortly thereafter the husband became an equity partner. The wife was promoted to managing associate in 2006. They became engaged in 2007, and the wife moved inhouse to a bank later that year.

The issues for the court to resolve centred around whether or not W’s move inhouse was – as W argued – because they wished to have children; they agreed she would sacrifice her career to enable her to spend more time with the children; but that she had excellent career prospects and would have been destined for partnership at the law firm. W also claimed H wanted her to give up her career. H denies this, and asserted he did not think it was a good idea for her to remain at the same firm as him after marriage, that he suggested she move to another magic circle firm. He disputed her partnership prospects and postulated her health would not have been good enough to manage as a partner long term.

The couple married in May 2008 and had two children in 2010 and 2012. W’s career did not advance at the bank, as she was told she was unable to work part time in the legal department as promised. She subsequently found a part time position in the business team, but was later made redundant and her entire team shut down. W had not worked since December 2016. W has significant health and mental health problems, and within proceedings a SJE report was commissioned from Dr Cosmo Hallström to assess W’s mental health and its relevance to her earning capacity both now and in the foreseeable future.

The assets broadly were: the FMH; three rental properties owned by W with net value of approximately £550,000, approximately £885,000 held in bank accounts predominantly in H’s name, various liquid investments totalling £1.055 million held broadly equally, liabilities of £285,423 to wife, and £267,663 to H. Both had pension provision, W had £710,464 and H had £1,212,832. The total capital in the case was approximately £9.7 million, of which approximately £7.2 million was liquid and £2.5 million illiquid.

H made an early offer to pay a lump sum of £400,000 plus £200,000 for a clean break with child maintenance of £25,000 per annum per child plus school fees. W rejected this, and sought £487,386 which was 54% of the liquid assets, pension share of 20.5% of H’s pensions to equalise values, and periodical payments of £360,000 pa by way of compensation for relationship generated disadvantage payable on joint lives basis and index linked. Provision for the children was agreed. H withdrew his earlier offer by arguing he should not have to pay the additional £200,000.Mr Justice Moor was clear that although compensation cases are rare, this was such a case. He found that W had received excellent appraisals which lavished praise and showed an extremely successful career at the law firm; one of the partners she worked with thought she was destined for partnership, another that it was realistic she aim for that. Moor J concluded that she might well have become a partner with the huge financial rewards that would have brought. Further, the Court found that H did not want W to remain at the firm after they married, that his career took precedence, and he was supportive of her decision to move inhouse. Further, H went along with W’s decision to give up her legal career when she could not work part time in the legal department at the bank. W’s subsequent ill health was not relevant to those findings.

In light of W’s current ill health, the Judge did not ascribe an earning capacity notwithstanding H’s case that she could earn £60,000 within 18-24 months and £100,000 within four years.

H’s income was approximately £1 million per annum net until 2022 and then around £775,000 per annum assuming his partnership share reduces, when he would also receive a significant lump sum. Out of income, H would have to pay £50,000 child maintenance and school fees.

In considering the award, Moor J revised downwards (significantly) both W’s housing need and W’s budget, but did not accept H’s arguments against a whole life term for periodical payments. Moor J concluded that relationship generated disadvantage impacts her earning capacity for the rest of her life. If she had not married, she would have retained her career in the law and potentially very high earnings, and this must be reflected in the maintenance term. This argument may have wider application, beyond mounting a successful compensation claim, but where relationship generated disadvantage is still a feature.

Mr Justice Moor stated that if it had not been for the relationship generated disadvantage, he would have found that a sum of £4.85m was sufficient after an 11 year marriage (comprising housing fund of £2.5 million and a Duxbury fund of £100,000 necessitating a lump sum of £2.35m).

In assessing the compensation claim, the Judge considered:

  • H’s future working life is four years, until he attained twenty years in the partnership at which stage he may be likely to retire. H will continue to have child maintenance and school fees to pay, plus a mortgage.
  • There should be a clean break in this case.
  • Looking at the relationship generated disadvantage, the Court must look at the next four years as W has already benefited from H’s previous earnings given the equal division of assets.
  • The appropriate sum to award, over and above her half share of the assets is £400,000, to be paid up front on the sale of the FMH. Pending sale, H to pay £8333 per month.

In his concluding remarks (para 72) Mr Justice Moor reiterated that these cases are “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, a relatively modest additional award. I have already made the point that, 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.”

The Judge’s efforts to dissuade unmeritorious compensation arguments could not be clearer. If any lessons are to be learned from this case as to future success, it is:

• The assets must be such that there are sufficient funds from which compensation could be paid beyond a sharing claim having been satisfied, and from which needs have to be met;

• The evidence must substantiate that the applicant (seeking compensation) had a proven track record in their career (rather than future success being a matter of speculation), and that success and high levels of remuneration were likely. In this case Mr Justice Moor concluded W had “a very good chance” [para 50] of being elected partner;

• The availability of contemporaneous documentary evidence which supports the arguments made about the applicant’s abilities and future career prospects is critical. Mr Justice Moor had seen all her appraisals [para 50] which supported her recollection, and that of her two witnesses, of her career potential.

If you have any questions about these types of claims, or about financial remedy proceedings please contact our clerks on 0207 092 3700 or clerks@coramchambers.co.uk.

Sarah Tyler

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