Top Tory will now keep £14 million divorce windfall meant for charity

Three senior judges dismissed an appeal by his former wife, Anne-Marie, that she should receive an extra £5 million from their divorce settlement. But the judges spoke of their concerns and said Sir Paul's "sense of moral obligation" seemed to have evaporated.

Sir Paul, 59, a former director general of Conservative Central Office and an adviser to the Cabinet, was divorced from his first wife in 2001. In the settlement, Lady Judge received £6.6 million, including the family home in Worcestershire and an £800,000 flat in London.

It was decided that the joint assets were only £15.6 million after Sir Paul agreed that £14 million should be paid to the couple's charitable foundation to cover losses in a collapsed company. Sir Paul - who made his fortune when he led a 1985 management buy-out of part of Cadbury Schweppes - agreed that he had "a moral obligation" as well as a legal liability to pay the money.

But later, Sir Paul's lawyers persuaded the Charity Commission that no legal requirement to reimburse the charity ever existed and the £14 million has remained unpaid. America-born mother of two Lady Judge appealed on the grounds that the divorce settlement had been based on a mistake. She wanted a share of the £14 million, which would have amounted to another £5.6 million.

But her application was thrown out by Lord Justices Longmore, Wilson and Lawrence Collins. However, in his judgment, Lord Justice Wilson said: "In 2001, the husband firmly stated that, irrespective of his legal obligation to reimburse the charity for its losses, he considered he was subject to a moral obligation to do so - and the wife concurred that he was subject to it. Soon afterwards, his sense of moral obligation seems to have evaporated."

However, the judge emphasised that this did not breach the original divorce settlement and "this case must proceed - and today surely end - on the basis that the Charity Commission acted properly".

Lord Justice Lawrence Collins said that Sir Paul had presented himself "as a successful and eminent businessman".

"But I remain disturbed about the way he used the charity to fund his own enterprises while simultaneously taking advantage of gift aid."

He concluded: "But, in the end, I am persuaded that, despite what is an undeserved windfall for Sir Paul, the appeal by the wife should fail."

The court heard today that Lady Judge may seek to appeal to the House of Lords. Costs for the hearing will be determined later. Neither Sir Paul nor Lady Judge were in court today.