Supreme Court allows husband's appeal on judicial separation costs, ruling trial judge erred in refusing costs order.

Neutral Citation Number 2005 IEHC 154

THE HIGH COURT

FAMILY LAW

[2002 No. 83 M]

IN THE MATTER OF THE JUDICIAL SEPARATION AND FAMILY LAW REFORM ACT 1989 AND

IN THE MATTER OF THE FAMILY LAW ACT 1995

BETWEEN

B.D.

APPLICANT

AND

J.D.

RESPONDENT

Judgment delivered by Mr. Justice William M. McKechnie on the 4th day of May, 2005.

1. On the11th December, 2003 this court delivered judgment in these family law proceedings between the applicant wife and the

respondent husband. Having granted a decree of judicial separation and having placed a valuation of €10 million on what I might term,

purely for descriptive purposes, as the family business, the court, when endeavouring to make “proper provision” for the parties under

s. 16 of the Family Law Act, 1995 inter alia:-

(1) directed the respondent to pay to the applicant:-

(a) the sum of €2 million net on or before the 28th February, 2004;

(b) the sum of €1 million net on or before the 28th February, 2005 and;

(c) the sum of €1 million net on or before the 28th April, 2006,

with the 2005 and 2006 payments carrying simple interest at the rate of 4% from the 1st March, 2004 until the dates of

payment.

(2) Granted the respondent an option of acquiring his wife’s interest in the family home, in respect of which a valuation of

€1 million had been placed, which option, if exercised carried the financial obligation of paying a further sum of €500,000

on or before the 30th April, 2004.

(3) Directed the respondent, in the event of his defaulting on or declining to exercise this said option, to transfer his

interest in the family home to the applicant and in that event the above payment which fell due on the 28th April, 2006

was to be reduced by, and to a sum of €500,000, and;

(4) directed the respondent to make a contribution of €100,000 to the applicant wife in respect of her costs.

These provisions were contained in paragraphs (ii) and (viii) of the court’s order, which apparently was perfected on the 5th April,

2004.

2. By Notices of Appeal dated the 20th April, 2004 the husband appealed against the aforesaid judgment and the resulting said order.

3. On the 8th December, 2004 the Supreme Court gave judgment in this case and having allowed the appeal in part, set aside the

aforesaid paragraphs (ii) and (viii) of the High Court’s order and remitted the proceedings back to this court for the purposes specified

in that judgment, which purposes were reaffirmed in the court’s order of the same date.

4. The applicant wife has now issued a Notice of Motion seeking inter alia directions as to the mode and manner in which this court

should conduct the hearing as directed by the Supreme Court. She also seeks other orders relative to that re-hearing including an

order appointing a single tax expert for the purposes of advising on the most tax efficient and tax neutral consequences of complying

with s. 16 of the Family Law Act, 1995. Affidavits were sworn by both parties and submissions made on their respective behalf. This

court now gives a ruling on the issues raised in that Notice of Motion.

5. In his arguments addressed to the Supreme Court, Mr. Durcan S.C., who appeared on behalf of the husband, submitted that the

trial judge should have, but failed, to make appropriate findings on the following matters:-

“(a) Whether it was possible to remove the sums of money in question from the company over a two year period;

(b) what mechanism could be used for extracting such funds,

(c) what would (be) the commercial effects of the extraction of the funds on the viability and future of the business and

(d) what would be the tax effects of the extraction of the funds”.

Mr. Justice Hardiman, who gave the unanimous opinion of that court upheld these submissions insofar as paragraphs (b) and (d) were

concerned but came to the conclusion that the High Court’s judgment must be regarded as having resolved the position which

underlined both paragraphs (a) and (c). The case was thus remitted back so that this court “may consider and make such findings as

it considers appropriate in the issues of:

(1) what mechanisms could be used for the extraction from this company of any funds ordered to be paid to the

applicant;

(2) the tax effects on the companies or on the respondent of the extraction of the relevant funds”. See the order of the

8th December, 2004.

That court also set aside the contribution for costs as provided for by the High Court and made no order as to the costs of the

appeal.

6. On the hearing of the aforesaid motion Mr. David Hegarty S.C. made a number of submissions on behalf of the wife. His principal

argument was that in determining what a “new lump sum” should be, the trial judge must approach that task on the basis of making

“proper provision” for the applicant as well as the respondent. In order to so do it is necessary to carry out a further full valuation of

the entire assets available to the parties and to conduct that exercise by reference to the date of re-hearing. No other approach

would be meaningful. He said that to try and endeavour to make “proper provision” on historical figures “that included estimates of

management accounts which subsequently transpired to be grossly inaccurate” (see paragraph 10 of the applicant’s grounding

affidavit) would be, in his opinion to burden his client with a great injustice. He believes therefore that the respondent husband should

not be permitted to “pick and choose” from those parts of the High Court judgment and order which he favours and yet at the same

time to insist upon a rigid curtailment of the re-hearing. Accordingly he submits that the family business should be re-valued as of the

date of the re-hearing. He also makes a similar submission with regard to the family home, notwithstanding the fact that the

respondent has exercised the option given to him by the High Court order. As a result he asserts that both of these assets, each with

an up to date valuation, should be available for the purposes of making “proper provision” under s. 16 of the 1995 Act. Finally, he also

submits that the setting aside of this court’s contribution of €100,000 towards the wife’s costs was not in anyway indicative of an

intention by the Supreme Court to lay down a general rule as to how costs should be dealt with in family law matters. Rather it was a

decision peculiar to the facts of the instant case.

7. Mr. Durcan S.C. appears on behalf of the respondent. In his submission he argues that the approach suggested by the wife is

fundamentally at variance with the Supreme Court order and that in any re-hearing this court is strictly confined to consider such

matters only as are necessary to “make such findings as it considers appropriate” on the two issues referred back to it. It has no

jurisdiction to go further. In particular, he submits that the valuation of €10 million on the family business was not interfered with on

appeal and has not been referred back. Moreover, he says that the applicant did not appeal the provision dealing with the family

home and likewise the Supreme Court has not asked the High Court to further enquire into this matter. Therefore there can be no

question of this court either revaluing the business or of taking the family home into account, when, having made such findings as

directed, it should come to apply s. 16 to the facts as so found. Consequently the re-hearing should be restricted in the manner

submitted. Finally I also think counsel agreed with the previously stated position about costs.

8. Strongly implicit in both the submissions of and the affidavit sworn by the applicant, is an allegation that the financial position of

the group of companies, which own and control the family business, is in a far stronger position today than what was “estimated” for

it at the date of the original hearing, namely July 2003. If that is correct it would seem to follow that on any current re-assessment

of its financial worth, the business would be valued at a figure higher, perhaps substantially higher than that placed on it by this court

originally. On that assumption, which of course may be entirely incorrect, it is quite simple to see how aggrieved the applicant might

feel unless an up to date valuation exercise is carried out. Unfortunately however from her point of view such a feeling cannot

determine the scope of the re-hearing. That task must be approached by considering what is the proper interpretation of the

Supreme Court’s intention as found in and gathered from a reading of the judgment as a whole. It is only in this way that its

directions can be properly complied with.

9. Having concluded that the trial judge made an error of law in failing to make findings of fact on the two issues above identified, the

Supreme Court then had to consider the consequences which flowed from that error. From the judgment we know that it was

requested to but declined an invitation to substitute its own view as to what the “appropriate lump sum” should be. Instead it

remitted the proceedings back for the purposes of this court rectifying the omission complained of in respect of the above said

matters. It did not however by any express words direct a complete re-hearing on all matters which would be germane to a de novo

consideration of what might constitute “proper provision”. It could have, but did not choose this option. So unless from an

examination of the judgment as a whole one could impute to the court such an intention, it would not in my view be permissible for

this court to embark upon a full re-hearing in the manner suggested by the wife. Having carefully looked at the judgment I cannot see

any basis for inferring the existence of such an implied direction. In this regard I do not see how D.T. v. C.T. [2002] 3 I.R. 334 can be

of any assistance to the applicant. Whilst it is true to say that, D.T. v. C.T. determined that the correct date of assessment should

be the hearing date, nevertheless it is quite evident that that general rule was intended to apply to an original hearing at first

instance, and not to a partial re-trial on limited issues. In such a situation the parameters must be ascertained from the judgment

referring the case back. I must therefore reject the principal submission made on behalf of the applicant. That means that I must

proceed on the basis that the family business is valued at €10 million and that the family home is valued at €1 million.

10. This view however does not conclude matters. It is in my opinion abundantly clear, that within these confines as outlined, this

court is constitutionally and legally obliged to make proper provision for the parties having regard to s. 16 of the 1995 Act. Guidance

as to what matters the Supreme Court felt were relevant to this court’s performance of that function, can I feel, be obtained from

the judgment itself. At p. 12 of the record, Hardiman J. said “The valuation and the lump sum award, together with the cost of buying

the wife out of the family home, transaction costs and tax liability, is such that the costs to the husband of making the provision

ordered substantially exceeds one half of the value of the company. Whether this is appropriate in the circumstances, and if not what

sum would be appropriate, can only be addressed after a view has been taken on two of the four points mentioned in a previous

section of this judgment”.

11. In that passage the learned judge has identified the valuation placed on the business and the family home, the lump sum provision

made, the option granted in respect of the family home and the transaction costs and tax liability involved in the implementing

provisions of the High Court order, as being matters highly relevant to the making of proper provision for the parties. As I have

previously stated, it is clear in my view from other parts of this judgment that I am bound by the valuations on the business and the

family home and that I must take into account the realisation costs, (identified at page 11 of the judgment as meaning in this case

tax liability) involved in any financial provisions which might be made. However, I cannot see any express restriction on this court

which would prohibit it from having available for its consideration the second most valuable asset of the entire marriage, namely the

family home. On the contrary I believe that the passage above quoted can be read as allowing this court, to have regard to the

family home in the discharge of its proper function under the 1995 Act.

12. In addition to this interpretation of the judgment, it will be recalled that the trial court did not deal with the family home by

directing the respondent to acquire the wife’s interest in it, at a cost of €500,000. Instead it granted him an option. Without in

anyway attempting to explain my earlier decision it is I think reasonable to infer that in so approaching the family home in that way,

the court was facilitating the husband in allowing him to take an overall view of his financial obligations under the High Court order. By

not exercising this option he would have available to him an extra €500,000 though of course he would have to find accommodation

for himself. If therefore there was for example, on the financial provisions made, a tax liability of say €0.8 million that sum could have

been reduced, perhaps very significantly reduced, if the alternative choice within the option was followed by him. That was to have

the wife acquire the husband’s interest in the home. In such a case, there would have been no question of any discretion once the

husband declined the offer which the court granted him. It was therefore a decision in his gift. Consequently this particular aspect of

the financial provisions which the court made, differed in this material respect from the other provisions it so ordered.

13. In addition it would I feel be grossly unfair if knowing as he did, what the High Court order entailed, the husband could still, by his

own action, effectively put a sum of €500,000 out of the reach of this court even in the limited manner in which its re-engagement is

required in this case. Such a consequence would seriously hinder the performance of the court’s duty in making “proper provision” as

of course it must do. Needless to say in arriving at this conclusion, which I do even in the absence of any appeal taken by the wife, I

am merely indicating that this asset should be available for the court’s consideration and I am not of course in anyway either

pre-empting or speculating on how the court might actually deal with the asset when making “proper provision”.

Accordingly by virtue of the judgment itself and in particular that section thereof which is quoted at paragraph 10 above and by

reason of the circumstances just mentioned, I believe that I am entitled to have regard to the family home; though of course I fully

realise that I cannot interfere with the valuation of €1 million already placed thereon.

14. The second matter of considerable difficulty relates to the financial position of the companies which own and control the family

business. It is quite clear from the Supreme Court’s judgment and order that the lump sum payments, as provided for by the High

Court, have been set aside and that a further comparable exercise must again be undertaken in order to arrive at “proper provision”.

This time, of course making the findings specified by the Supreme Court. The question which thus arises is whether this court, in

embarking upon that task should be restricted to the profile of the companies as it existed in July 2003 or whether it would be

permissible to consider that position as of the re-hearing date. Depending on the individual components of its finances, it may for

example be that on the extraction of a capital sum from the companies there would be no difference in the tax consequences

between the historical position of two years ago and today’s date. On the other hand it is conceivable that the tax liability on the

same sum could be greater or smaller today than it would be if the assessment date were that of the original trial. The companies

may have more or less debt, more or less cash, more or less investments or perhaps quite different financial structures. They may be

able to avail of perfectly legitimate tax schemes which on the realisation of funds would considerably reduce their liability. Or they

may not. One simply does not know.

Similar considerations would also apply to the personal circumstances of the respondent.

15. It seems to me that it would be utterly unreal to have to rely on historical data which may display a totally different picture than

that prevailing today. Take the following situation as an example. This court could come to a conclusion that, as matters stood in

2003, the tax cost of extracting “Y” funds would be “X” and accordingly proceed on the basis that X plus Y equated with “proper

provision”. If however on today’s figures the cost of Y funds was not X but a multiple or a fraction of it then the total sum of Y plus X

may be entirely inappropriate as “proper provision”. Again, if in today’s figures the tax liability should be, say one third of X, it would

be imprudent, indeed almost irresponsible for the respondent husband not to utilise an extraction method which would yield the lesser

liability. In this example therefore either the court could insist upon a route which would demand the expenditure of the higher figure

or alternatively, it would allow flexibility and be oblivious to the gain or benefit to the husband. Both situations would be highly

unsatisfactory. The example given is of course but one. There are a number of other analysis which could easily produce several

different variations. In my view in any of these circumstances I doubt strongly if this court could comply with s. 16(5) of the 1995

Act which prohibits it from making any order under that section “unless it would be in the interests of justice to so do”. It therefore

seems to me that whilst sticking strictly to a valuation of €10 million this court should be able to look at the existing components of

the companies finances, (but only insofar as these are relevant), in order to determine what sum would satisfy the “proper provision”

standard and in the context of that process, to make all necessary and required findings.

16. Finally, when applying s. 16 of the Family Law Act, 1995, this court is not in my view restricted by the Supreme Court’s judgment

from making an order for the payment of maintenance as well as providing for a lump sum if, in its overall judgment a combination of

both are necessary to make “proper provision”.

17. The last point that requires consideration is to comment on the question of costs. Could I immediately say in this regard that I

respectfully agree with the views of both counsel in this case. It seems to me that the principal rationale for the decision of the

Supreme Court in setting aside the contribution of €100,000 towards the applicant’s costs, was based on the fact that she had been

unsuccessful in her primary claim, namely an assertion that she was entitled to a 50% equitable interest in the companies. Its

decision therefore, can be considered as one made on the facts of this case.

18. To view it otherwise would be in my opinion to convert it into a major decision of significant importance in family law matters and

one which could have far reaching consequences for litigation in this area of the law. In the first place there are statutory provisions

which are directly applicable to this issue. In any proceedings under the Judicial Separation and Family Law Reform Act, 1989, the

court’s discretion on the question of costs is specifically covered by s. 35 thereof, which read as follows:-

“S. 35 – The costs of any proceedings under this Act shall be at the discretion of the court”.

That provision also applies to the Family Law Act, 1995 and to all proceedings taken under the Family Law (Divorce) Act ,1996. See s.

38(6) and 38(5) respectively of these Acts. These provisions are probably doing no more than re-affirming what the position was at

least as far back as the Matrimonial Causes and Marriage Law (Ireland) Act, 1870. See s. 27 thereof. Therefore it would seem, that

when dealing with family law proceedings covered by these Acts, the court has a discretion on the issue of costs, which presumably

it should exercise in accordance with Order 99 of the Rules of the Superior Courts, the relevant case law and of course the facts of

that particular case.

19. Secondly it must be realised that family law proceedings today are in many respects fundamentally different in nature than such

cases previously were, even as recent as 25 or 30 years ago. At that time and indeed for decades before, there was a strong view

that, save in exceptional circumstances, a husband should be responsible for his wife’s costs, perhaps even if she was unsuccessful.

This approach stemmed from a period in time when a married woman was not entitled to hold property in her own right and when as a

matter of strong probability she had no assets of her own. It was thus considered unjust to deprive her of access to the courts

simply because of these facts. (See F. v. L. [1991] 1 I.R. 40). Nowadays however as a result of legislative intervention, judicial

activity in establishing equality and eliminating discrimination, and in an era of major societal change, these considerations no longer in

my view have the same application. Circumstances quite literally have changed.

20. It might be somewhat surprising to realise that the specialist practitioners in the field of family law are virtually unanimous in their

view that a case with an asset base of €5 million or under does not qualify as a “big money case”. In addition and perhaps equally

surprising is the fact that in about 90% of cases that come before this Court, the monetary threshold which applies to a case in the

Commercial List would be most easily satisfied. And here I am not simply referring to the value of the family home. Moreover in cases

which fight, the chase for documentary material, the pursuit of interlocutory gain and the intensity of court battle would comfortably

rival the most contentious parties in any area of litigation. All of this relates to ancillary orders, as there is rarely, if ever, a contest

on the evidential basis grounding the application for the decree itself. As a result it has now become necessary for this court, from a

very early stage, to actively manage the progress of such cases, and do so right up to the date of trial. Indeed in this regard a

comprehensive document will shortly issue under the hand of the President of the High Court, either by way of a Practice Direction or

as a Trial Protocol, which will set out mandatory requirements so that all such cases can be dealt with expeditiously, efficiently and in

the most cost effective way.

21. In this branch of the law there is of course no tendering process similar to that which exists elsewhere and the availability and

use of the Calderbank procedure (see Calderbank v. Calderbank [1975] 3 All E.R. 333 C.A.) is undeveloped. Whilst it is true that “open

offers” can be made by either party this facility is not commonly availed off. There is therefore no method by which the

unreasonableness of one or other of the parties can be dealt with by the court, save for demonstrable conduct during the currency of

a trial which rarely is that evident. Given the obligation to make proper provision under the 1995 and 1996 Acts, many parties believe

that as a result of this requirement they are in effect financially immune from participating in litigation no matter how lengthy the

process may be or how unreasonably they may act. For this to be the situation or even perceived to be the situation, is not in my

view in the public interest or in the interest of the administration of justice.

22. A great number of parties involved in this type of litigation have physically, psychologically and emotionally exited from their

former partners and all that remains for them is to have apportioned, in whatever percentage or form, what money or assets remain.

For those who, for whatever reason, have not reached that stage they know that, in the guise of seeking financial relief, they can

use the court as a forum in order to ventilate their hurt, anger, sense of betrayal or other deeply felt conviction. Whilst on a personal

and human level I have every sympathy and understanding for the requirement of such an emotional outlet, nevertheless one might

legitimately query whether this is a function of the court’s system let alone for those persons its primary function. The responsibility in

this regard must surely lie elsewhere.

23. Lest the above should be taken as portraying my view of all family law cases, I should immediately say that this is not so. A

reasonably good number of such cases are compromised and some others do not have the intensity which I have endeavoured to

describe. I should also say that the family bar is very conscious of its responsibilities to the court. However, notwithstanding the very

many positive aspects of family law procedure, the fact remains that the availability and utilisation of a cost order, either as a

litigation benefit or deterrent, must be considered in a much more overall way.

24. In my view I do not believe that any category of family law case should as a matter of principle be exempt from these cost

provisions. It cannot be right that litigation can be open ended without even the risk of any type of cost order. Whilst I appreciate

that the available assets are most frequently accumulated within marriage and that decrees of judicial separation and divorce are

available without establishing fault, nonetheless I cannot accept that a court should be powerless to award costs even where the

case, or the parties to it or their conduct within the proceedings, merit the making of such an order. If that were so I firmly believe

that both justice and the public would be ill served.

25. In particular I cannot identify any reasons why these provisions would be anything other than highly relevant to “big money

cases” when clearly by definition there should remain, even after an award for costs has been made, substantial funds out of which

the parties can very comfortably thrive. My most major concern would be with the smaller type of case where the assets, in

whatever form, are quiet limited. In such instances there may be great difficulty even in providing shelter, clothing and food for the

parties and their dependents. It is in that type of situation rather than in a big money case where the court will have most difficulty.

Whilst I do not have any concluded view as to how best the issue can be dealt with, nevertheless even in the most trying

circumstances I believe that a cost award should always be available as a matter of discretion to the trial court.

I therefore propose to apply these principles to the forthcoming hearing between the parties in this action.

26. In consequence I would intend to proceed on the basis that I am bound by the valuations placed on the business and the family

home but that within these limits I am entitled to have regard to both, in the restricted and limited manner which I have indicated. As

a result therefore, I will after hearing the parties make such orders as may be appropriate so as to facilitate this re-hearing. In that

context I wish to say that I regret the decision of the respondent husband to decline an invitation to have a single tax expert

appointed who in that capacity would be the sole witness on taxation issues.