financial remedies update -...
TRANSCRIPT
Financial Remedies Update
1 Nuptial agreements after Radmacher
1.1 The Supreme Court dismissed Mr Granatino’s appeal against the Court of
Appeal decision, effectively limiting his s 25 award to an amount sufficient to
clear his debts and buy a car, whilst allowing a quasi-Schedule 1 award. This
gave him a £2.5m housing fund for a home here and an additional fund for a
property on the continent. Both these homes were to be held in trust and would
revert to Ms Radmacher once the children had reached 22.
1.2 The Supreme Court held (by a majority of 8 to 1, Lady Hale dissenting):
1.2.1 the Privy Council had been correct in Macleod to reject the submission that
nuptial agreements should be presumptively dispositive of the disposal of a s 25
claim;
1.2.2 nevertheless, “the court should give effect to a nuptial agreement that is freely
entered into by each party with a full appreciation of its implications unless in the
circumstances prevailing it would not be fair to hold the parties to their
agreement”;
1.2.3 at the same time, it approved “I am certain that English courts are now much
more ready to attribute the appropriate (and, in the right case, decisive) weight
to an agreement as part of ‘all the circumstances of case’ ... Upon divorce, when
a party is seeking quantification of a claim for financial relief, it is the court that
determines the result after applying the Act. The court grants the award and
formulates the order with the parties’ agreement being but one factor in the
process and perhaps, in the right case, it being the most compelling factor ...”;
1.2.4 and it also suggested, in relation to separation agreements, that Macleod was
correct in holding that the court should be looking for a change in circumstances
which rendered the agreement ‘manifestly unjust’;
1.2.5 the rule that ante-nuptial agreements were void as against public policy was no
longer valid. However, whether or not they were valid contracts was a red
herring in the context of a s 25 claim;
1.2.6 to carry full weight, both must enter into it of their own free will, without undue
influence or pressure and informed of its own implications [68]. Independent
advice and full disclosure are designed to ensure this. The question is not
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whether there was no independent advice or no disclosure. The question is
whether there was any material lack of disclosure, information or advice. The
Court of Appeal had been correct in their approach on this issue [69].
1.3 In considering its new test at 2.2.2 above, the Supreme Court considered a
numbers from paras 77 to 82 as matters which would be relevant to the court’s
evaluation on fairness. In essence, it would be unlikely to be fair to attempt to
contract out of needs or compensation based provision, but there was nothing
inherently unfair about contracting out of sharing non-matrimonial property [79].
1.4 Since the decision, the Law Commission has produced a discussion paper on
‘Marital Property Agreements’. It was seeking responses by 11 April, and was
considering options including formalities and safeguards, what effect the
agreement should have (cast-iron or only presumptively dispositive), and the
extent of the assets to be governed by qualifying nuptial agreements.
2 Bankruptcy and financial remedies
2.1 Bankruptcy and the order for sale
2.1.1 Suppose that Mr and Mrs Smith own their matrimonial home as tenants in
common in equal shares. They agree an order which involves the sale of the
home and a split 80:20 in her favour. Their lawyers use the standard Resolution
Precedent:
“The property known as 27 Acacia Avenue shall be forthwith placed on the open
market for sale and the following consequential provisions shall apply ...
[provisions re marketing agents, price etc]
(e) the net proceeds of sale [being ...] shall be paid as to 80% to Mrs Smith and
as to 20% to Mr Smith.”
2.1.2 The order is made by the court on 5 September 2011. The decree is made
absolute on 7 September 2011.
2.1.3 Mr Smith is made bankrupt on 3 October 2011. The sale completes on 12 October
2011.
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2.2 Is Mrs Smith entitled to 80% of the proceeds of sale, in reliance on the order? Or
is she only entitled to 50%, as asserted by Mr Smith’s trustee in bankruptcy, who
says that the beneficial interests remained at 50:50 until the sale completes, so that
Mr Smith retained a 50% interest when he was made bankrupt?
2.3 HHJ Cooke found for the trustee in Warwick v Yarwood [2010] EWHC 2272 (Ch).
He held that the adjustment of beneficial interests takes place only on completion
of sale. Arguably this decision was obiter as in Warwick v Yarwood the sale had
completed before the consent order had been approved.
2.4 A way of avoiding this conclusion is to draft the order for sale differently: “The
property known as 27Acacia Avenue shall henceforth be held by the parties on
trust for them as tenants in common for Mrs Smith as to 80% and for Mr Smith
as to 20%, and the property shall forthwith be placed on the open market for sale,
and ...”
2.5 Annulment of bankruptcy
2.5.1 If you are going to apply to undo the bankruptcy:
C do it early, before the trustee has incurred significant costs in administering the
bankrupt’s estate, as
C the applicant will need to make provision for the trustee’s costs of administering
the estate. If not, the court will not annul the bankruptcy order.
2.5.2 These are highlighted by Mekarska v Ruiz & Boyden [2011] EWHC 913 (Fam).
Here W had obtained a s 37 injunction against H. She had also obtained an
occupation order ousting H and preserving her matrimonial home rights beyond
decree absolute. H later admitted he had disposed of funds in breach of the s 37
injunction, but with the final ancillary relief hearing pending, he applied to make
himself bankrupt. His statement of affairs was not exactly inaccurate, although
it was far from full and frank. When W discovered H had been made bankrupt,
she threatened to apply for an annulment but did not do so.
2.5.3 Before the DJ, W conceded a sale of the fmh and simply sought an order that she
receive the entire surplus in the estate. Against a fmh worth £270,000 free of
mortgage, and the amount required to discharge the bankruptcy of £117,000 (as
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against the original bankruptcy debts of £50,000 in December 2007), W would
have had about £150,000.
2.5.4 After the hearing, W changed her mind and withdrew her co-operation from the
sale. She applied in person for permission to appeal out of time against the
ancillary relief order, and was given permission by a Recorder. In due course,
she applied to annul the bankruptcy order. She had new lawyers for a period but
then sacked them. By the time of the hearing in March 2011, the amount required
to discharge the bankruptcy was £260,000: W would only receive anything at all
if her claim was met before any payment was made to the trustee.
2.5.5 Jackson J held:
• neither the occupation order nor the freezing order prevented the bankruptcy
order taking effect
• an annulment could only be granted on the basis that provision was made for the
trustee’s fees
• H had been unable to pay his debts when he petitioned and his statement of
affairs had been accurate
• the appeal against the district judge’s order was dismissed – he had made no
error (indeed he did what W invited him to do). The Paulin decision was not a
Barder event, although if the annulment application had been successful, the
court would have taken it into account on the appeal
• a bankruptcy court which is aware that a debtor issuing a bankruptcy petition is
undergoing divorce proceedings should adjourn to allow notice to be given to the
spouse
2.6 On the subject of s 37 injunctions/ freezing orders, Mostyn J in ND v KP (Freezing
Order: Ex Parte Application) [2011] EWHC 457 (Fam) [2011] 2 FLR 662 laid down
the law:
C to obtain the order, there must be before the court a demonstration of objective
facts that evidenced the likelihood of the movement or dissipation of assets with
the intention of defeating the applicant’s claim; contemporaneous evidence was
needed and unsupported statements or expressions of fear had little weight;
C an application for ex parte relief should be made only where there was positive
evidence that to give notice would lead to irretrievable prejudice being caused
to the applicant;
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C where the applicant had not acted with the high duty of candour required at an
ex parte hearing, the court had a discretion to discharge the order and/or make
a fresh order.
3 The fall-out from Imerman: Imerman [2010] EWCA Civ 908 [2010] 2 FLR 814
3.1 Remember the so-called ‘Hildebrand rules’. Are they in fact not quite dead?
3.2 The headlines
3.2.1 H was entitled to the return of his confidential documents, any copies and any
notes made by W and/or her solicitors (subject to a complete set being retained
by H’s matrimonial lawyers) [147]. Likewise W and her solicitors were forbidden
to use any of the information they have obtained through reading the seven lever
arch files [150].
3.2.2 H could not obtain an order erasing W’s memory [169]. So, if W can recollect the
contents of the documents by the time questionnaires were due to be filed, she
would be entitled to deploy that knowledge to challenge the accuracy of H’s
disclosure [169].
3.2.3 The court might think it right and indeed in appropriate circumstances necessary
to enjoin W from continuing to instruct solicitors to whom confidential
documents and/or information had been passed [121].
3.2.4 The ancillary relief judge has a discretion whether or not to admit highly relevant
evidence obtained in an underhand manner [171] [172].
3.2.5 Anton Piller search orders should be no more difficult to obtain in family cases
than in other divisions of the High Court [133].
3.2.6 The Hildebrand rules simply have no legal basis: there are no such rules. The
rule in Hildebrand as to the time when copies of the other spouse’s documents
should be disclosed remained good law [120]. There is therefore no basis of any
possible defence to a claim in tort or breach of confidence [117].
3.2.7 Don’t worry: the court can always draw adverse inferences [124] to [126]!
3.3 In practice
3.3.1 The dangers of a spouse resorting to self-help disclosure remain. They include
liability for damages in tort (for trespass to goods or conversion), criminal
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liability in relation to offences under the Data Protection Act 1994 and the
Computer Misuse Act 1990.
3.3.2 Are the pilfered documents ‘confidential’? Did H have an expectation of
confidentiality in relation to them? Unless there is an ‘iniquity’ point (see below),
this will depend on the nature of the documents, where they were kept and in
what circumstances, and how open or otherwise the parties have been with their
finances during the marriage: confidence does not depend on locks or keys.
3.3.3 If so, the expectation is that the documents will have to be returned, together
with any copies or any notes made from them. The lawyer will not wish to know
anything for fear of being prevented from being able to continue to act.
3.3.4 Alternatively, without looking at them in detail but counting the number of
pages, an undertaking could be sought from the other spouse’s lawyer that once
returned the original documents would be kept pending resolution of the s 25
claims (effectively preserving the documents and thus allowing them to be
looked at in the event your client is dissatisfied with the other spouse’s form E).
3.3.5 No confidence in an inquity. You cannot use the law of confidence to suppress
evidence of wrongdoing. If the document is entitled ‘Mr Smith’s secret plan to
hide assets from Mrs Smith and the court’, he cannot prevent W using it in the
proceedings or taking and keeping copies.
3.3.6 After forms E, where the pilfered documents clearly show H’s disclosure in form
E is false, the iniquity point will apply. So apply the Hildebrand rules (even
though they don’t exist). Take copies but do not retain originals longer than
necessary to take copies. Disclose the documents on request or if earlier, on
serving your client’s questionnaire.
Cohabitation
4 The orthodox view has been stated in the 1980s, 1990s, and again in the first
decade of this century. The court cannot equate the cohabitation of a person
post-divorce with that person’s re-marriage. Where that person has the benefit
of a spousal maintenance order, her cohabitation will not automatically bring that
order to an end. Instead, it will simply be a reason for a downward variation: it
goes only to quantum not term. A cohabitee has no legal obligation to support
the payee and can leave at any time. The court should strive to discern the
realities of the situation. The extent to which they contribute or ought to
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contribute to the payee’s household expenses will be relevant in ascertaining her
real net income needs.
4.1 In K v K (Periodical Payment: Cohabitation) [2005] EWHC 2886 (Fam) [2006] 2 FLR
468, Coleridge J made a plea to change the orthodox approach:
“[2] In the 35 years since the enactment a social revolution has taken place. The
concept of cohabitation is now as normal, commonplace and acceptable as
marriage. At every level of society and amongst all adult age groups people
cohabit without a second thought. It carries no social stigma whatever. Nor for
that matter does the birth of children outside marriage.
“[3] In these circumstances should not the financial consequences of
cohabitation (following a previous divorce) be the same as the financial
consequences of a further marriage; namely that any then existing order be
discharged or, one way or another, no longer remain effective? That is the issue
which lies at the root of this application by a husband to discharge or reduce to
a nominal order the periodical payments order made against him at the time of
his divorce in 1998. ... “
4.2 Despite Coleridge J’s urgings, in H v H (Financial Provision) [2009] EWHC 494
(Fam) [2009] 2 FLR 795, Singer J took a more conservative view of the effect of
cohabitation. The case was not a variation case, and H earned £435,000 net pa.
W’s budget was put at £104,000, and H’s at £273,000, although the judge thought
neither figure helpful. Singer J held that ‘needs are not the only or the strict test’.
He ordered joint lives periodical payments at £125,000 pa for W and £15,000 for
the child.
4.2.1 This was despite the fact that it emerged at trial that a man called L had spent
most of his ‘January leisure hours and nights’ at W’s home, and only in cross-
examination did she reveal that she was 17 weeks pregnant by him. However,
there was no evidence to suggest L made any effective or material contribution
to W’s living expenditure on any sustained basis. Their expected child was likely
to increase their mutual dependence, but would not inevitably do so. They might
or might not cohabit (a term Singer J described as an ‘unsatisfactory word and
concept, vague as to quality and duration and not a reliably valid indicator of
anything long term’). L’s presence on the scene, and the presence of their child,
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did not affect the quantum of capital division at all (that much was fairly
uncontroversial, based as it was on sharing and not needs). While
sympathetically attracted to the views of Coleridge J in K v K, the Court of
Appeal cases were binding, and Coleridge J’s views were ‘heretical’. Change had
to come from Parliament or a court with authority to make new law or change
the old.
4.2.2 The Court of Appeal allowed H’s appeal in H v H, now reported as Grey v Grey
[2009] EWCA Civ 1424 [2010] 1 FLR 1764. It held that the judge should have
made a finding as to whether W and L were a couple. The evidence was clear
that they were, and he was then obliged to have gone on to investigate and
assess the financial consequences of that development. Whilst there was no
evidence of L making any financial contribution, that was not the end of the
matter: “There is in these cases an obvious motive to avoid any pooling of income
to meet expenditure. The real question will generally be not what is he
contributing but what ought he to contribute. ... The judge could not be fair to
[H] as the payer without investigating whether [L] was making any financial
contribution to the household and, if not, what was his capacity to make
contribution. Mr Pointer said that [L], resident within the Irish Republic, was not
a compellable witness. That circumstance did not prevent investigation. The
judge had only to require [W] as applicant to produce evidence of [L]’s means or
risk the drawing of adverse inferences.”
4.2.3 The court also took the opportunity to over-rule Coleridge J in K v K (above) and
re-assert the orthodox view as set out in Atkinson and Fleming. Pre-marital
cohabitation would only make a difference in a small range of cases, such as “the
marriage which is on the edge of being short and which may be rescued from
that label by adding in a substantial period of pre-marital cohabitation”. There
was no basis for equating post-marital cohabitation with re-marriage, as W
would have no legal entitlement to any financial contribution from her new
partner, either during the relationship or on its breakdown. Until such a new
claim was created, ‘the argument ... does not run’: ‘the approach indicated by this
court in Fleming v Fleming remains sound and is sufficiently flexible to enable the
court to do justice and to reflect social and moral shifts within our society.’
4.2.4 As Wall LJ added, ‘Post-separation cohabitation with a third party is a relevant
factor for the court to take into account when considering the level of
maintenance pending suit and/or periodical payments which the cohabiting
spouse or former spouse should receive from his or her spouse or former spouse.
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In some cases, the fact of cohabitation will weigh heavily in the scales: in others,
it will not.”
4.2.5 The impact of the relationship was considered by Singer J in Re Grey (No 3) [2010]
EWHC 1055 (Fam) [2010] 2 FLR 1848. H had applied to vary down on the basis
of W’s relationship with L, and W had applied to vary up on the basis of H’s
increased income. Singer J held that about a year after the relationship began
between L and W (ie when it was clear that W was expecting L’s child), it would
be fair to treat them as a couple, with the result that from that point L should
have been contributing to her domestic economy. L retained his own home, and
it should not be assumed that L and W would actually live together.
4.2.6 Singer J rejected H’s submission that W’s maintenance should be reduced to
nominal only. No reduction was justified further than that necessary to take
account of what L ought to be contributing. W was entitled to continue to have
the standard of living envisaged by the original order (via a combination of H
and L). The fair amount L ought to contribute was assessed at €55,000 between
December 2007 and the beginning of 2009, which W was to repay to H. From
2009 onwards, L’s fair contribution would be €16,000 pa, in the light of his
reduced income. He assessed that figure (i) by calculating one half of L’s income
after payment of his mortgage and expenses paid for his and W’s child; and (ii)
cross-checking against one half of W’s ‘establishment’ costs in her current
accommodation (L did not spend all his time there). Despite, H’s income having
more than doubled since, W’s maintenance order was not to be increased above
the original order, but would be reduced by the amount of what L ought fairly
to be contributed (with another reduction to save tax by loading maintenance
onto the child maintenance order).
Appeals
5 In Kaur v Matharu [2011] 1 FLR 698 [2010] EWCA Civ 930, the Court of Appeal
had to consider the test for admitting evidence on an appeal from a district judge
to circuit judge in ancillary relief proceedings. The applicable rule was r 8.1(3)
of FPR 1991, which allowed the appeal court to look at fresh evidence if “in all
the circumstances of the case it would be in the interests of justice to do so.” The
fresh evidence sought to be adduced related to the intervenor’s claim made
within ancillary relief proceedings.
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5.1 The Court of Appeal held that the principles in Ladd v Marshall [1954] 1 WLR 1489
did not apply as strictly in family appeals. There was plainly a ‘latitude for
relaxation’ in relation to children cases; it ‘may be there’ in ancillary relief cases,
‘albeit not necessarily with the same liberality’. But the fresh evidence went to
the ToLATA aspect decided within the family proceedings. There was no
possible argument for relaxing the rules in relation to that aspect of the case. The
evidence could have been obtained with reasonable diligence for the trial, and so
did not satisfy the Ladd v Marshall criteria. Even where those criteria were
relaxed in family cases, the discretion to adduce fresh evidence on appeal was
still to be exercised sparingly.
5.1.1 The new rule is FPR 2010, r 30.12(2):
“Unless it orders otherwise, the appeal court will not receive –
(a) oral evidence; or
(b) evidence which was not before the lower court.”
5.1.2 This is a straight copy of CPR 52.11(2). The Practice Direction to Part 30 is silent
as to how the court might decide to ‘order otherwise’. Presumably the slightly
more liberal rules survive. The counter argument is that the rules have been
brought into line with CPR 52 and there should be uniformity of approach as to
how the same rule is applied in all contexts.
5.2 Part 30 of the FPR now provides that all appeals from DJ to CJ/ HCJ require
permission. There are 21 days within which to file a notice of appeal.
5.2.1 The PRFD has not been applying the new rules properly. The expectation is that
an application for permission to appeal (other than one made to the trial DJ) is
referred to a High Court Judge on paper (just as would be the case in an appeal
to the Court of Appeal). However, there are reports that, even before permission
has been granted or even considered on paper, the ‘appeal’ is being listed for
directions: see O v O, Baron J, 14 July 2011 (Family Law Week).
Updating evidence
5.3 In P v P (Financial Relief: Procedure) [2008] EWHC 2953 (Fam) [2009] 1 FLR 696,
Baron J heard a preliminary point in an appeal. She granted permission to W to
adduce further accountancy evidence as to the value of the family shareholding.
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She said: “... but if the learned judge finds that the district judge was plainly
wrong, where is the case to go from there? It is set down for 4 days. If the judge
reaches a conclusion that the district judge was wrong then he/she will have to
listen to submissions as to the proper outcome of this case. The parties have
always agreed that the assets are to be split equally and that the case merits a
clean break. ... If the judge finds the district judge was plainly wrong, it would
seem to me that, in fairness, the judge should be in a position to make a
determination as to the price to be paid.”
Barder appeals
5.4 Richardson v Richardson [2011] EWCA Civ 79 [2011] 2 FLR 244 was another appeal
which was put on the alternative bases of a supervening Barder event and a
mutual mistake at the time of trial.
5.4.1 After a 46 year marriage, the judge in June 2009 heard the ancillary relief claim.
H and W were, like the Whites, both marital and business partners in every sense.
The net assets were c £11m. They both accepted equal division, and the issue was
how to effect it. The judge ordered W to have two properties and ordered a
further lump sum of £3.35m in instalments. In total she received £5.18m as
against H’s £5.73m. W was to resign from the partnership and H would
indemnify her re all partnership liabilities. The departure from equality was
2.5%: W’s 47.5% was justified on the basis that H retained risk-laden assets. The
order was perfected on 25 September 2009.
5.4.2 In July 2004, a young girl aged 2 had fallen out of a first-floor window of one of
the partnership’s properties. She suffered serious injuries including brain
damage. A claim was issued against the partnership in December 2008. Both
parties were aware of the claim when the ancillary relief claim was being dealt
with and the fact that it might involve a substantial liability. They both assumed
that it would be covered by their insurance.
5.4.3 On 4 November 2009, W died of a heart attack. On 18 December 2009 H learnt
that the partnership’s insurers had avoided their policy. In February 2010 H
applied for permission to appeal out of time. He relied on (i) W’s death, and (ii)
the insurers’ avoidance of the policy.
5.4.4 The Court of Appeal rejected the claim based on W’s death. The death of a party
can be a Barder event, but usually only where the deceased’s future needs had
been a central or critical factor in assessing the quantum of the s 25 award. This
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was a sharing case. W had earned her share, and had there no been no ancillary
relief award, her estate would have a half share in ToLATA or Partnership Act
proceedings. Her death was not a Barder event.
5.4.5 H’s case on the insurance was (i) they both assumed that they were fully covered,
whereas the claim was for £3m and their cover was limited to £2m, and (ii) the
insurers had avoided policy so that they were wholly uninsured. The Court of
Appeal rejected (i). The possibility of liability under the claim was a ‘known
unknown’. The limit of cover was not a ‘new event’: ‘the problem’ had been
there all along. He could have discovered the extent of his cover with reasonable
diligence before the order was made. Faced with a known unknown he chose to
proceed without further enquiry, and he could not be heard to say know that he
was mistaken.
5.4.6 However, the avoidance of the policy by the insurers was an ‘unknown
unknown’. It was true that the insurer had not confirmed acceptance of liability
prior to the order being made. But H had no personal knowledge that there was
any possibility of the policy being avoided until December 2009. The Court of
Appeal accepted that there was a vitiating mistake – the parties believed and the
court accepted that the claim was covered, so that the assets were wrongly
believed to be c £11m and not only £9m ish. It was a mistake not a Barder event.
£1m of the sum outstanding to W’s estate would be held and would be subject to
one half of (i) damages payable under the claim; and (ii) costs in defending the
claim and prosecuting claims against the insurer or broker.
5.5 How to challenge ancillary relief consent orders under the new rules
5.5.1 Paragraph 14.1 of the Practice Direction to Part 30 states “The rules in Part 30 and
the provisions of this Practice Direction apply to appeals relating to orders made
by consent in addition to orders which are not made by consent. An appeal is
the only way in which a consent order can be challenged.”
5.5.2 Er, why? We used to be able to use CCR Ord 37, r 1, which allowed the court to
reopen a final decision where ‘no error of the court is alleged’, was often the
route used to challenge decisions based on non-disclosure etc. That rule no
longer exists in family proceedings since 6 April 2011. However, there is rule
4.1(6): “A power of the court under these rules to make an order includes a
power to vary or revoke the order.” This is a copy of CPR rule 3.1(7). The cases
on this rule state that it cannot be used as a route of appeal against a final order.
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However, it can be used where the original order was made on the basis of
erroneous information (although this may not always allow the court to reopen
a final order: Roult v North West Strategic Health Authority [2010] 1 WLR 487 [2009]
EWCA Civ 444). Why not then use rule 4.1(6) in a mistake or non-disclosure
case?
5.6 The effect of applying to set aside. In Independent Trustee Services Ltd v GP Noble
Trustees [2010] EWHC 3275 (Ch) [2011] 2 FLR 174, Peter Smith J held:
C where H had wrongfully taken monies from a third party and used them to pay
his obligations under a lump sum order, W was entitled to retain those sums
where she was ‘equity’s darling’, in having had no notice of the third party’s
claim to the funds;
C where W applied to set aside the consent order under which she had received the
above funds on the basis that H had further assets which he had failed to
disclose, her application to set aside did not invalidate her title to the funds she
had already received.
Joinder/ intervention
6 How should the court case manage claims involving third party property claims?
6.1 The standard assumption is that the third party should be joined as an
intervenor. This is particularly so where the financial remedy proceedings are
underway and the third party has not yet brought any proceedings. By joining
the third party, that party is bound by any findings of fact as to the beneficial
interests by issue estoppel. The third party issue should be determined as a
preliminary issue, with points of claim relevant to the property issue and
separate witness statements on that issue (Rossi v Rossi [2006] EWHC 1482 (Fam)
[2007] 1 FLR 790, TL v ML [2005] EWHC 2860 (Fam) [2006] 1 FLR 1263).
6.2 However, that is not the only option. The preliminary issue approach may be
disproportionate. Some courts will move direct to final hearing with the poor
third party having to sit through pure ‘financial order issues’ as well as the
property issue relating to him/ her. Some courts list for FDR in the hope that all
issues can be cracked in one go. The third party might wish to issue separate
proceedings, especially if he or she wished to take advantage of an interlocutory
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process available under CPR not available in the family proceedings (eg default/
summary judgment): Gourisaria v Gourisaria [2010] EWCA Civ 1019 [2011] 1 FLR
262, p 268 at [18] per Hughes LJ).
6.3 A mere invitation to intervene can be made under FPR 9.13(1)(c) (the replacement
of r 2.59(3) of FPR 1991). If the third party accepts the invitation, there is no
difficulty: an issue estoppel will arise. However, if the third party declines the
invitation to intervene, he has not been joined and no issue estoppel arises.
Whilst a person who declines the invitation to intervene and who then takes
subsequent proceedings might be met by an abuse of process argument based on
the rule in Henderson v Henderson, this argument is much less clear cut and more
uncertain than the simple issue estoppel point.
6.4 How to join?
6.4.1 Prior to 6 April 2011, this was done in reliance on RSC O 15, r 6(2)(b). In relation
to a person within the jurisdiction, no possible issue could arise. However, in
Gourisaria, Hughes LJ expressed doubts as to whether an order for joinder would
be effective if the non-UK residents whom it was sought to join were to stand on
the absence of jurisdiction of the English court over them ([2011] 1 FLR 262, at 267
[18]).
6.4.2 Of course, RSC O 15, r 16 is no more. Nor can courts rely directly on CPR 19.2
(which allows a court to join a person as a party to civil proceedings if it is
desirable to join in order to resolve all matters in dispute in the proceedings or
there is an issue between new and existing parties connected to the matters in
dispute in the proceedings and it is desirable to join so that the court can resolve
that issue). The CPR do not apply in family proceedings, and unlike the FPR
1991, the new rules do not incorporate the CPR in general.
6.4.3 A possible solution was suggested by the Court of Appeal in Goldstone v Goldstone
[2011] EWCA Civ 39 [2011] 1 FLR 1926. In terms of the new rules, Hughes LJ
considered, obiter, that CPR 19.2 (above) was not directly incorporated by the FPR
2010. There is no express power to join third parties to financial order
proceedings (unlike say, the power in rule 8.8 to join parties to applications under
s 36 of the 1973 Act – alteration of maintenance agreement after death of one
party, or the power under rule 16.2 to join the child as a party to family
proceedings). However, he considered that a power to join may be derived from:
FLBA Financial Remedies Update 2011 -14- Michael Horton
(i) rule 1.4(2)(b)(ii) – active case management includes identifying at an early
stage who should be a party to proceedings; (ii) rule 4.1(3)(o) take any other step
for the purpose of managing the case and furthering the overriding objective; and
(iii) rule 18.3(1)(c) – the Respondents to a Part 18 application notice shall be ... any
other person as the court may direct.
6.4.4 At [71], he opined “Since the 2010 rules say nothing about the principles on
which joinder of third parties (onshore or offshore) should be exercised, it may
be that courts will have recourse by analogy to the principles contained in CPR
19.2 and 6.36 with its Practice Direction 6B. The final resolution of that issue
must however await a decision on the point.”
6.5 Inspection appointments. These are no more. There are now two ways of
obtaining information from third parties.
6.5.1 Orders for disclosure against third parties under FPR 21.2. Much of FPR 21.2 is
taken from CPR 31.17, and the guidance on its use in CPR is likely to be just as
relevant:
C the order may only be made where disclosure is necessary in order to dispose
fairly of the proceedings or to save costs
C ordering disclosure against third parties is the exception not the rule, the
jurisdiction should be exercised with caution, and the court had a duty to ensure
that this intrusive jurisdiction is not used inappropriately even by consent
C the order must list the documents or classes of documents which the third party
is obliged to disclose;
C the order must require the third party to say which documents are no longer in
their control or which are privileged
C the order may require the third party to indicate what has happened to any
documents they no longer have; and
C the order may specify the time and place for disclosure and inspection
C no document may be compelled to be disclosed unless the third party would be
compelled to disclose it at a final hearing
C Costs: under CPR 48.1(2), the general rule is that the applicant must pay the third
party’s costs of the application, and of complying with any order made on the
application. Where the application was unreasonably resisted, the court may
depart from that starting point, but often may simply order no order as to costs.
FLBA Financial Remedies Update 2011 -15- Michael Horton
Where a party’s failure to give disclosure has prompted the application against
the third party, the court might order that party to pay the third party’s costs.
6.5.2 Seeking permission to issue a witness summons returnable other than at a final
hearing under Part 24:
C Under 24.2, a witness summons may require a witness to produce documents on
a date fixed for a hearing or on such date as the court may direct;
C Under 24.3, a party must obtain permission to issue a witness summons for a
person to produce documents at any hearing other than a final hearing;
C a witness summons must give at least 7 days’ notice of the date on which the
witness is to attend court, unless the court abridges time: 24.4;
C the witness may apply to set aside or vary the witness summons;
C the only costs that the witness is entitled to are travel expenses and compensation
for loss of time in accordance with PD24A, though check the cases in the White
Book commentary to CPR 34.3 and M v M (Third Party Subpoena: Financial
Conduct) [2006] 2 FLR 1253.
The relevance of non-matrimonial property
7 This issue has arisen in several recent cases.
7.1 In Jones v Jones [2011] EWCA 41 [2011] 1 FLR 1723, the Court of Appeal allowed
W’s appeal against the blockbuster decision of Charles J delivered in 484
paragraphs. Wilson LJ formulated the issue thus: “When an asset of a spouse -
in this case a husband - represents the proceeds of sale of a company which he
brought into the marriage and built up during it, how is the attribution of part
of the proceeds to the husband’s ownership of it at the date of the marriage to be
conducted for the purposes of the sharing principle and, in particular, does the
exercise of attribution permit focus not only on the value of the company at the
date of the marriage but also on the husband’s personal capacity at that date to
build it up in the future?” That last consideration was dubbed the ‘springboard’
or the latent potential in the company enabling it to increase in value.
7.1.1 The parties married in 1996. There was no child of the marriage but W’s child
from her first marriage was treated as a child of the family. H was 14 years older
than W. He set up his business in supplying equipment to the oil industry in the
FLBA Financial Remedies Update 2011 -16- Michael Horton
North Sea in 1986 and it became D Ltd in 1988. The parties separated in January
2006. In May 2007, he sold the company for a net £25m. Charles J found the net
assets to be £25m. He awarded W £5.4m, of which £400k was designed to meet
her unpaid costs. Charles J had treated only 40% of those sale proceeds as being
marital acquest, of which she should receive half. W argued she should receive
40% of the overall net assets. He rejected that on the basis that 60% of the net
proceeds of sale of the business represented what H had brought to the marriage.
He held that W’s sharing claim might amount to £5.8m, her needs claim only
extended to £4.6m, but that her lower needs claim might inform the application
of the sharing claim to reduce the award overall to £5.4m.
7.1.2 The Court of Appeal held that this last point was wrong. It was confusing and
unhelpful. In applying the principles of needs and sharing, the court was
engaged in separate exercises.
7.1.3 The Court of Appeal held that it was impermissible to seek to capitalise a
spouse’s earning capacity at the date of the marriage and thus excluded from, or
otherwise brought into account in, the sharing principle. This was the case
whether H was a fledgling, fully fledged, or airborne! Charles J had in effect
taken this approach in treating the current value of the company at the date of
the marriage was £15m.
7.1.4 It also held that, in this case, the appropriate approach was to identify which part
of the £25m was reflective of non-matrimonial assets and which part was
reflective of matrimonial assets, bearing in mind a precise division was unlikely
to be either needed or achievable. On the facts, there were no arguments against
sharing the non-matrimonial assets 100% to the contributor and 0% to the non-
contributor, and no arguments against sharing the matrimonial assets equally.
Nevertheless, the result produced by this approach should be tested by
identifying what percentage (less than 50%) of the total assets W should receive
as representing a fair overall allowance for H’s introduction of his company into
the marriage.
7.1.5 In applying that approach, they held:
(i) the company was worth £2m net at the time of the marriage;
(ii) but it contained a springboard or latent potential. A year after the
marriage H was offered £6m to £7m for the company. Even allowing for
caution in the allowance for spring-boards (otherwise every historical
FLBA Financial Remedies Update 2011 -17- Michael Horton
valuation of companies at the date of the marriage would be increased),
the Court of Appeal held that it was then worth £4m (a figure conceded
to be highly arbitrary);
(iii) on top of that, some recognition was necessary to account for passive
economic growth in the company between the date of the marriage and
date of sale;
(iv) Wilson LJ therefore took the view that, despite the argument that H had
actively managed the company during the marriage, it was appropriate
to apply the FTSE All Share Oil and Gas Index to increase the value at the
date of marriage;
(v) that led to a current value of £8.7m;
(vi) rounded up to £9m, that meant the matrimonial assets were £25m less
£9m, ie £16m, and so W’s sharing claim extended to £8m
7.1.6 Applying the overall test percentage as the cross-check, that amounted to 32% of
the overall £25m. 40% sought by W would have been too much. This percentage
was within a fair overall bracket. The award would therefore be £8m (and there
was no need to add the £400k for costs to it).
7.1.7 As to the approach to be taken to allowing for ‘passive economic growth’ on
differing types of assets, see Arden LJ at paras [59-61].
7.1.8 Charles J’s judgment at first instance had sought to introduce more formality in
the construction of financial order cases. Important elements of the case, the
‘building blocks’ ought to be reduced to writing in order to define the issues.
Thorpe LJ in Goldstone was sceptical of the value of this outbreak of quasi-
pleadings. Wilson LJ considered that, in appropriate cases it would be helpful
to identify (i) the issues which each party raised for the court to determine; (ii)
the findings for which each party contended referable to each issue; and (iii) the
evidence on which such findings could be based and on which each party relied.
7.2 In N v F [2011] EWHC 586 (Fam) [2011] 2 FLR 533, Mostyn J took a similar
approach to that taken by the Court of Appeal in Jones, agreeing with the
approach he set out in FZ v SZ and Others (Ancillary Relief: Conduct: Valuations)
[2010] EWHC 1630 (Fam) [2011] 1 FLR 64.
7.2.1 The total assets were £9.7m. H had £2.1m at the time of the marriage in 1993.
Adjusting for inflation it would now be £3.4m. Adjusting for the FTSE100, it
FLBA Financial Remedies Update 2011 -18- Michael Horton
would now be £4.2m. W sought 50%, seeking to share all the assets, on the basis
that her needs claim also amounted to £4.85m. H sought to ‘ring-fence’ part of
the pre-marital monies and offered W £4.17m. It was a sixteen year marriage
with two children aged 15 and 8.
7.2.2 In March 2007, H left the banking sector in which he had been very successful.
He did so with little regret. He now earned £52,000 pa as a school-teacher. H got
out at the right time, turning share options etc into cash on leaving a year before
the crash. Since 2007, the family had been living off capital. Mostyn J rejecting
W’s claims for add backs for various sums she criticised H for spending since
separation:
“In this country we have separate property. If a party disposes of assets with the
intention of defeating the other party's claim then such a transaction can be
reversed under s37 MCA 1973. Similarly, where there is “clear evidence of
dissipation (in which there is a wanton element)” then the dissipated sums can
be added back or re-attributed (see Vaughan v Vaughan [2008] 1 FLR 1108 at para
14). But short of this a party can do what he wants with his money. What is not
acceptable is a faint criticism falling short of either of these standards. If a party
seeks a set-aside or a re-attribution then she must nail her colours to the mast.”
7.2.3 Likewise, he rejected W’s claims that H could and should be working in the
banking sector. “First, if it is alleged that a party is not exploiting an earning
capacity, then it is incumbent to prove that by clear evidence rather than by
anecdotal scraps. I would have expected evidence from an employment
consultant demonstrating that H did indeed have and has a substantial earning
capacity in the financial sector since 2007. ... Fourth, even if W had been able to
show that H had indeed eschewed a high earning capacity I find it impossible to
criticise him for moving into another more happy and fulfilling field at the age
of 55, even if rather lower paid.”
7.2.4 On the law, he rejected the notion that all the court should do where the existence
of non-matrimonial property is proved is merely share the overall assets
unevenly: “that approach simply does not tell anyone what weight is being given
to that factor ... What is the point of [identifying matrimonial and non-
matrimonial assets] if it is then put to one side in favour of a percentage based on
‘feel’?” He considered the approach in Jones was the correct one. The process
should be:
FLBA Financial Remedies Update 2011 -19- Michael Horton
“(i) Whether the existence of pre-marital property should be reflected at all.
This depends on questions of duration and mingling.
(ii) If it does decide that reflection is fair and just, the court should then
decide how much of the pre-marital property should be excluded. Should
it be the actual historic sum? Or less, if there has been much mingling? Or
more, to reflect a springboard and passive growth, as happened in Jones?
(iii) The remaining matrimonial property should then normally be divided
equally.
(iv) The fairness of the award should then be tested by the overall percentage
technique.”
7.2.5 On the facts, he excluded £1m from the sharing principle: the pre-marital wealth
was the bedrock on which the marriage was founded. Against that, the marriage
was long, and the monies were well and truly mingled with other funds,
signifying an acceptance by H to a large extent that the monies would be shared
with W. But for W’s needs, he would have excluded more. This left W with
44.7% of the overall assets. In contrast to Jones, where W had 32% after a 12 year
childless marriage, this was therefore fair overall.
7.3 In Robson v Robson [2010] EWCA Civ 1171 [2011] 1 FLR 751, the Court of Appeal
dealt with H’s inheritance in a more broad-brush manner.
7.3.1 Here there had been a 21 year marriage. There were two children aged 20 and
17. The total assets were about £22.5m, which included £16m from an inherited
estate, and another £2m from an inherited estate in Scottish highlands. The judge
ordered W to receive a lump sum of £8m on or before 1 January 2010, with
interest to run until payment made. He ordered that specified properties were
to be put on the market in August 2009 (to provide the source for these funds).
Charles J also ordered interim maintenance at the rate of £140,000 pa from July
2009 until payment in full.
7.3.2 Although H had sought to argue that the estate should be preserved for his
descendants, Charles J found that he had mismanaged the estate. Despite being
a qualified accountant, the record-keeping was shocking. The parties had lived
beyond their means. H had plundered the inheritance he claimed to be
preserving. W was aware that they had been living on a mismanaged
inheritance. W put her case on the basis of her needs. Her housing needs she put
FLBA Financial Remedies Update 2011 -20- Michael Horton
initially at £2m to £5.5m. He held she needed £5m. On income needs, he held
that, in order to match the standard of living enjoyed during the marriage, W
would need £135,000 to £145,000 pa. She wanted a capitalised maintenance lump
sum and a clean break. Late in the day H offered secured maintenance in an
effort to prevent sale of the estate but did not show how this could be done. The
correct Duxbury sum would be £3m. His award was therefore £8m (recognising
that she owed £600,000 in costs). He satisfied himself that this was fair overall
having regard to the source of the assets and the application of the sharing
principle.
7.3.3 In fact after judgment, it became apparent that W had found a property she
wanted to buy for £2.4m on which she wanted to spend £1.6m in refurbishment.
H did not seek to argue that the award should be reduced at a further hearing
fixed to settle the order and deal with outstanding issues.
7.3.4 H appealed. He contended that the housing and income needs were excessive.
The imposition of interest and interim maintenance was oppressive and led to
double-counting. The judge should have made a secured maintenance order and
not capitalised the maintenance claim. H sought to rely on the fact that the estate
sold for c £2m to £3m less than the value attributed to it by Charles J. The Court
of Appeal admitted the fresh evidence, and also admitted evidence that W had
in fact spent £4.3m on purchasing and improving her new home, which went to
her needs.
7.3.5 Ward LJ held (i) the order for the lump sum was defective. Decree absolute was
on 11 February 2010, so the lump sum order could not take effect on 1 January
2010. Interest could only run from 11 February 2010. The order should have read
payable on or before 1 January 2010 or on the grant of decree absolute whichever
was later’. It seems no one took the point about the order for sale not having
been enforceable either!! (ii) if the judge intends that a lump sum be paid from
the proceeds of sale, the order should ordinarily link payment to the completion
of sale. Interest could be awarded from the time the court considered a sale
ought to have been concluded, otherwise the paying party would have an
incentive to stall; (iii) there might be an element of double-counting with interim
maintenance and interest both payable until payment in full. The payee would
need funds prior to sale, hence the maintenance order. Some modest discount
of the lump sum might be called for. The judge can use his broad brush.
7.3.6 On the facts, (i) £5m was excessive for W’s housing needs – she had spent only
£4.3m; (ii) W’s income award was excessive. It was unfair to criticise H for
FLBA Financial Remedies Update 2011 -21- Michael Horton
mismanagement and over-spending and then fix W’s award out of H’s
inheritance with reference to that excessive lifestyle during the marriage; (iii) just
because there was a mere possibility that some day W might remarry was no
reason not to seek to achieve a clean break; (iv) her income needs would be
reduced by c 10% and her Duxbury award would reflect that and the fact that in
due course she could trade down and release capital. With £4.3m for housing,
£2m for income needs, and with unpaid costs, the award would be rounded up
to £7m. Standing back that was a fair award having regard to all the factors.
7.3.7 Ward LJ’s summary of the applicable law was much less prescriptive than Jones
or N v F:
‘[43]. How then does the court approach the “big money” case where the wealth
is inherited? At the risk of over-simplification, I would proffer this guidance:
...
7. ... The fact that wealth is inherited and not earned justifies it being treated
differently from wealth accruing as the so-called “marital acquest” from the joint
efforts (often by one in the work place and the other at home). It is not only the
source of the wealth which is relevant but the nature of the inheritance. Thus the
ancestral castle may (note that I say “may” not “must”) deserve different
treatment from a farm inherited from the party's father who had acquired it in
his lifetime, just as a valuable heirloom intended to be retained in specie is of a
different character from an inherited portfolio of stocks and shares. The nature
and source of the asset may well be a good reason for departing from equality
within the sharing principle.
8. The duration of the marriage and the duration of the time the wealth had
been enjoyed by the parties will also be relevant. So too their standard of living
and the extent to which it has been afforded by and enhanced by drawing down
on the added wealth. The way the property was preserved, enhanced or
depleted are factors to take into account. Where property is acquired before the
marriage or when inherited property is acquired during the marriage, thus
coming from a source external to the marriage, then it may be said that the
spouse to whom it is given should in fairness be allowed to keep it. On the other
hand, the more and the longer that wealth has been enjoyed, the less fair it is that
it should be ringfenced and excluded from distribution in such a way as to render
it unavailable to meet the claimant’s financial needs generated by the
relationship.
FLBA Financial Remedies Update 2011 -22- Michael Horton
9. It does not add much to exhort judges to be “cautious” and not to invade
the inherited property “unnecessarily” for the circumstances of the case may
often starkly call for such an approach. The fact is that no formula and no resort
to percentages will provide the right answer. Weighing the various factors and
striking the balance of fairness is, after all, an art not a science.’
7.4 In K v L (Ancillary Relief: Inherited Wealth) [2010] EWHC 1234 (Fam) [2010] 2 FLR
1467, Bodey J relied on two key features, the modest standard of living, and the
fact that the assets were solely derived from W’s discrete unmingled pre-marital
inheritance.
7.4.1 At age 15, W (born in England to Israeli parents) acquired a shareholding in an
Israeli company. Her shareholding was then worth £290,000. The parties began
to live together some 13 years later. They went through an Islamic marriage in
1987 and married at the English register office in 1991. Her shares were then
worth £680,000. Neither did any real work outside the home during the
marriage. They borrowed money from a friend to buy the matrimonial home in
1994. From 1993 the income from the shares averaged £38,000 pa. In 2001, W
sold some shares for £1m. She received bonus share issues, augmenting her
shareholding on three occasions between 2000 and 2004. From 2002 her income
from shares averaged £180,000 pa. W estimated the pre-separation expenditure
to be c £80,000 pa. The parties separated in April 2007. At that time, her
shareholding was worth £28.3m gross. By the time of trial, H was worth
£320,000, and W £58.8m, being mostly the £57.4m pre-CGT value of the
shareholding.
7.4.2 It was agreed that W would pay H a lump sum in a clean break settlement. It
was agreed that it would be paid offshore and not brought into the jurisdiction
by H until after decree absolute. This would avoid CGT here and in Israel on the
realisation of the shares necessary to pay the lump sum. H sought £18m. W
offered £5m. H claimed capital needs of £2.5m and an income need of £105,000
pa. Bodey J noted that this sum was two-thirds more than the figure the entire
family had lived on during the marriage. W’s unmatched and discrete
contribution in bringing her shareholding to the marriage, which had been the
sole source of family support during the marriage, was a highly relevant factor.
7.4.3 Having considered Miller and Charman, he asked the question, should there be
any sharing beyond that required to meet H’s needs fully and generously
FLBA Financial Remedies Update 2011 -23- Michael Horton
assessed? Fairness did not require more than W’s offer of £5m, which very
generously met H’s needs and more. The analogy from Charman that special
contribution should not produce less than 33% for the other party was not apt to
these facts.
7.4.4 H’s appeal to the Court of Appeal was dismissed on 13 May 2011 (K v L (Non-
Matrimonial Property: Special Contribution) [2011] EWCA Civ 550):
C White v White said no to discrimination on gender grounds, but did not forbid all
discrimination. It was not discrimination to find that, whilst each party made
efforts of equal value during the marriage, the wife had made a financial
contribution to the marriage of great importance;
C the importance of the source of the assets may diminish over time, especially
where (i) initial contribution of non-matrimonial property was followed by the
acquisition of valuable matrimonial property over time; (ii) there was inter-
mingling; or (iii) an initial contribution of non-matrimonial property to the
matrimonial home might over time be treated by the parties as a central item of
matrimonial property;
C however, there was nothing on the facts of this case which required a diminution
in the importance of the source of the parties’ entire wealth, which had always
remained ring-fenced in the wife’s name;
C special contribution applied to the circumstances in which a spouse contributed
to matrimonial property. It was not possible to treat the initial contribution of
non-matrimonial property as a special contribution, and wrong to seek to apply
Charman to leave H with not less than 1/3 of the overall assets.
7.5 Whaley v Whaley [2011] EWCA Civ 617.
7.5.1 W ended up with £3.75m out of total assets assessed by Baron J at £10.4m, after
a 21 year marriage. There were four children aged between 12 and 20. £7m of the
total was made up of assets comprised in two trusts. H was a beneficiary of the
first discretionary trust, which had been set up by H’s father, but not of the
second which had been ‘spun’ off the first. Baron J treated H as having
‘resources’ within both trusts.
7.5.2 H attacked the award on the basis that it would put improper pressure on the
trustees and was excessive in the light of the source and nature of the trust assets.
7.5.3 The Court of Appeal held:
FLBA Financial Remedies Update 2011 -24- Michael Horton
C the test from Charman as to whether asset was a resource was whether or not the
trustee would be likely to advance the capital immediately or in the foreseeable
future;
C the test was ‘likely’ not virtually certain to advance;
C there was no different rule for ‘dynastic’ trusts in contrast to ‘settlor-beneficiary’
trusts, and the court disavowed the use of any such classification;
C the question posed in Charman should be answered, albeit that the court will have
regard to the circumstances of the particular trust – how it came into being, who
the beneficiaries are, what duties the trustees have, what other relevant terms
there are, how it has been administered in practice and so on – in answering the
question and in determining, in due course, what ancillary relief order to make;
C the judge had been entitled to find the test met in relation to both trusts: in
relation to the first, it had been divided into three funds before H’s father died
and the trustees had done H’s bidding; in relation to the second, it was clear that
its creation owed much to tax issues and there was the expectation that H would
be added as a beneficiary once those issues had resolved;
C Baron J had put W’s needs at £3m but said that, in addition, W was entitled to
share in the acquest, even though it had been made with the assistance of and
through H’s interest in the trust. She put this element at £750,000 on the basis
that W deserved a modest share in the marital assets which exceeded her basic
needs. This approach did not fall foul of the Charman guidance on not adding up
the results of the needs, sharing and compensation principles: this was not a case
in which the award should be determined by needs alone but one to which the
sharing principle applied and that the proper application of that principle in this
case would produce a figure which exceeded the needs calculation by £750,000.
Baron J had then stood back and considered the overall percentage with which
W would be left. This approach, and the outcome, was well within the range of
decisions which were open to her on the facts.
7.6 Mansfield v Mansfield [2011] EWCA Civ 1056 concerned the impact of H’s
damages for personal injury. He received £500k in 1998. After a 5-6 year
marriage with two 4 year old twins, the DJ ordered W to receive about half the
capital, based on her housing need. H appealed against both quantum and the
fact that it was an outright transfer. The Court of Appeal dismissed the first
point but ordered that H should have a Mesher charge over W’s new property.
FLBA Financial Remedies Update 2011 -25- Michael Horton
The DJ had failed properly to apply the guidance on damages contained in
Wagstaff v Wagstaff [1992] 1 FLR 333. Thorpe LJ held:
C Sharing principle must be tempered to reflect needs of recipient and very nature
of acquisition of capital, ie pi damages
C There should have been a Mesher: need to give special reflection to origin of
family capital and special purposes for which it was provided
C ‘exceptional factor in this case’: the origin of vast majority of the family capital
7.7 In SK v WL (Ancillary Relief: Post-Separation Accrual) [2011] 1 FLR 1471, Moylan J
rejected the need for a precise boundary between matrimonial and non-
matrimonial property. Here a company had been formed three years before
separation, at which time the children were aged 18 and 14, and had been sold
three years after separation for a considerable sum. Moylan J ordered W to
receive 40% of the overall assets, reflecting the fact that the business had taken
off impressively post-separation, whilst bearing in mind that H had been trading
with W’s unascertained share at the time of separation and had been fully at risk
between separation and trial.
7.8 In J v J (Financial Orders: Wife’s Long-Term Needs) [2011] EWHC 1010 (Fam) [2011]
2 FLR forthcoming, Moylan J again avoided detailed consideration of the sharing
principle, where most of the assets represented the sale proceeds of H’s pre-
acquired and inherited shareholding in a family company. Since W’s needs
entitled her to £4.04m out of c £8.7m, which would exceed any possible result of
the sharing principle, it was unnecessary to examine the latter in any detail. The
needs award included capitalised income provision which allowed for W to
release capital when the youngest child was 21. Whilst W’s current budget was
put at £105,000 pa for herself, Moylan J capitalised her maintenance based on her
‘long-term needs’ of £80,000 pa.
8 Lump sums under Schedule 1
8.1 Johnson J in Phillips v Peace [1996] 2 FLR 230 had held that, where the CSA had
jurisdiction to make a maintenance assessment, the court could not supplement
that assessment by making a lump sum order under Schedule 1 to the Children
Act 1989. In such cases, a lump sum order could not be used to provide for day
FLBA Financial Remedies Update 2011 -26- Michael Horton
to day income needs or the regular support of the child. Thus, child maintenance
could not be capitalised and paid for say three years in advance.
8.2 Paragraph 5 of Schedule 1 provides that the power to order a lump sum may be
used ‘... to meet liabilities or expenses incurred in connection with the birth of the
child or in maintaining the child, reasonably incurred before the making of the
order’. It might therefore be thought that, if M cannot get her supplemental child
support capitalised in advance, on the basis of para 5 she could incur the debt
and have it paid off in arrears. Hale J in in J v C (Child: Financial Provision) [1999]
1 FLR 152 said no to this as well.
8.3 In ‘big money’ Schedule 1 claims, the courts have ordered fathers to pay lump
sums to mothers to clear the mother’s debts, as in Hill v Morgan [2007] 1 WLR 855,
on the basis that, in effect, he is so much richer than she is and will always be so.
8.4 This ‘big money’ approach appears to have infected Baron J’s approach in DE v
AB [2010] EWHC 3792 (Fam). The child was born in March 2008 after a brief
relationship. The DJ ordered F to pay a lump sum of £85,000 and provide a
housing fund for the child’s housing during his minority of £250,000. F paid only
£40,000 and appealed against the remainder of the lump sum and the housing
fund. His appeal was successful only in reducing the lump sum to £40,000 – the
housing fund remained.
8.4.1 Prior to meeting F, M had purchased a 3 bedroom property in London with a
£750,000 mortgage. Her basic salary had been £70,000 pa gross – her best year
with bonus was £140,000 gross. The property was worth £725,000 and the
mortgage was now £600,000, in arrears (rising by £2,500 pcm). She had
commercial debts totalling £112,000 as against net equity of £98,000. She had just
lost her job but her earning capacity was taken to be £60,000 pa, and her
mortgage capacity £150,000.
8.4.2 F had been made redundant from his city job in 2004 and received just under
£1m. Most of this was now gone – he had sunk c £500,000 in a South African
game reserve on land which was about to be compulsorily purchased. His
London house, bought in 2001, was now worth £1.2m as against a mortgage of
£800,000. His net equity was £358,000. His drawings from his business were
assessed by the CSA as £28,000 pa, but the DJ considered the CSA analysis was
FLBA Financial Remedies Update 2011 -27- Michael Horton
flawed and that his earnings/ drawings were c £100k pa. His business had since
folded and Baron J considered his earning capacity was in the same region.
8.4.3 F’s appeal was on the basis that the total award (£85,000 plus £250,000 ie
£335,000) was plainly excessive where his own capital was only £358,000. He said
that the mother should rent, and that the lump sum was excessive and included
provision for revenue items.
8.4.4 Baron J’s conclusions:
• the court could assess the amount of a lump sum in a broad brush manner,
without specifying the precise amounts of each category of the claim, and
without having to audit the claim;
• the argument about double counting on revenue costs might be a good one if the
father had truly been making a significant contribution via the Child Support
Agency, particularly given the district judge's findings as to the true level of his
earning capacity. But he was not. He has only ever paid minimal sums, and
currently he is paying some £22 per week;
• the father also contended “that the district judge was only entitled to make lump
sum provision in respect of specific purchases for the direct benefit of the child
which were assessed, as he put it, at £46,575. I do not accept this submission
because the statute is widely framed. Mortgage payments and general running
costs are recoverable because they are (of necessity and in part) for the direct
benefit of any child. Obviously, such payments cannot be double counted, but
inadequate provision towards running costs, based on a flawed CSA calculation,
would, in my view, entitle the court to supplement such expenditure in the right
case by way of capital provision, particularly if merited on the facts.”
8.4.5 This case therefore suggests that:
• it might be appropriate to order a housing fund even where this might deprive
the Respondent of most of his capital, especially where (i) he had a good
mortgage capacity, and/or (ii) he had been cavalier (or more than a little
unlucky) in depriving himself of other capital;
• although Phillips v Peace is not mentioned specifically, a different approach can
be taken to allow for an applicant’s debts to be paid;
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• in appropriate cases, a lump sum could be ordered to pay for revenue expenses
such as mortgage interest – assuming that the court considers the CSA has made
an incorrect assessment.
8.4.6 Surely if a parent contends that the CSA assessment is incorrect, the appropriate
course is an appeal or variation within the CSA system, and not incurring debt
and having it paid off by a lump sum as a sort of unofficial appeal against the
CSA assessment?
8.5 Schedule 1 settlements
8.5.1 If you are after a housing fund, consider the dangers of asking it to be paid to
trustees. The Re N saga (see Re N (Payments for Benefit of Child) [2009] EWHC 11
(Fam) [2009] 1 FLR 1442 through to G v A (No 3) [2011] EWHC 2377 (Fam))
shows:
C you cannot obtain a charging order to enforce an order which requires the
Respondent to settle a sum on the Applicant/ trustees for the benefit of the child;
C until the trust deed is finalised and trustees appointed, no one can give the
Respondent a receipt for his monies and so the obligation to pay the sum cannot
arise until that point;
C HHJ Horowitz in this case recommended the much simpler option of having the
terms of the trust in the order (as in the Resolution Precedents) rather than
requiring a separate trust deed;
C The court has the power in a Schedule 1 case to order a transfer of a jointly
owned property into one party’s sole name with a charge back to the
Respondent: see Re S [2002] EWCA Civ 168.
8.6 Schedule 1 lump sums for legal fees.
8.6.1 Charles J in CF v KM (Financial Provision for Child: Costs of Legal Proceedings) [2010]
EWHC 1754 (Fam) [2011] 1 FLR 208 held there was jurisdiction to make an
‘interim’ lump sum under Schedule 1 towards legal fees. F was ordered to pay
£20,000 to M’s solicitors, on their undertaking to use it only in discharge of legal
costs, referable to a forthcoming three day trial in the s 8 proceedings and
Schedule 1 costs up to and including a listed FDR. F’s income was not such as
FLBA Financial Remedies Update 2011 -29- Michael Horton
would allow the court to make a maintenance order, but the lump sum provision
was ‘for the benefit of the child’ in ensuring M was properly represented in both
sets of proceedings. Charles J rejected ‘floodgates’ concerns:
“(i) ... an application would only have a sensible chance of success if the non
resident parent has capital assets or financial resources from which a lump
sum could be paid or which would warrant a settlement or property
transfer order being made,
(ii) in most cases where s 8(6) does not apply this would not be the case, and
so there would be no realistic claim under Schedule 1 for any purpose,
and,
(iii) authorities on the exercise of the discretion would establish that provision
in respect of costs would only be made in limited circumstances, and in
particular after the court had had regard to (a) whether such an order
would be unfair to the paying parent, (b) whether there was real prospect
of a substantial award being made under one or more of paragraphs
1(2)(c) to (e) against the paying parent because of his financial resources
and (c) the prospects of such costs (or some of them) being recouped by
deduction from the award that the paying parent was ordered to pay,
settle or transfer.”
8.6.2 There is nothing to limit this provision to cases where the parents are unmarried.
In an appropriate case a lump sum could be sought under Schedule 1 during
pending divorce proceedings.
8.6.3 Note that, in this context, clause 45 of the Legal Aid, Sentencing and Punishment
of Offenders Bill would:
C allow the court to make an order in divorce nullity & judicial separation
proceedings for a lump sum to be paid to fund ‘legal services’ (new s 22ZA of the
MCA 1973);
C prevent a ‘costs allowance’ being included in maintenance pending suit orders
under s 22 (but not in interim orders for periodical payments made on or after
decree under s 23);
C not prevent interim lump sum orders in Schedule 1 proceedings funding legal
services.
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9 Departure from equality based on future income disparity
9.1 Murphy v Murphy [2009] EWCA Civ 1258 [2011] 1 FLR 537 ought to have been a
simple case. Stripped from the errors made at first instance, however, it
nevertheless contains a surprising conclusion.
9.1.1 It was a childless marriage that lasted 7½ years. Both parties were aged about 40.
H had been a high-earning banker but had been made redundant at about the
time of separation and had not worked since. Parker J sought to achieve a 65:35
split of the overall assets, with a nominal maintenance order. The split of the
former matrimonial home worked out at £2.5m to W and £12,000 to H. This
outcome was based on:
C the fact that H had a deferred compensation scheme, which despite H’s
unchallenged evidence that it was ‘illiquid’ and therefore ‘below the line’, she
treated as a readily realisable asset;
C she accepted W’s submission that H had wasted £2m since separation, even
though W was not seeking an add-back, and the figures were wrong and such
capital that had been spent was readily explicable;
C she sought to justify her award on the basis that W’s needs were ‘pre-eminent’
even ‘magnetic’.
9.1.2 The Court of Appeal held that she was clearly wrong about the deferred
compensation scheme and the ‘wasting’ of assets. As to needs, Thorpe LJ said
this:
“This was an 8-year childless marriage. The parties are both aged approximately
40. Each of them has a fresh start in life to make, certainly on an emotional plane.
The wife has retrained and is already developing a new career. There are £3m of
assets to meet their respective needs. This was essentially a simple case that was
made unnecessarily contentious and complex. The case had all the hallmarks of
clean break and equality.”
9.1.3 So, no departure from equality then?
9.1.4 Er, yes. The Court of Appeal rightly removed the nominal maintenance order.
But they rejected H’s case for equal division of the realisable assets. Why?
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“[37] I would not put it in terms of need or waste obviously; but I would put it
as the price the husband must pay for the clean break, recognising the disparity
in their future earning capacity and in their future capacity to generate capital.
That disparity is much emphasised by the judge on her assessment of the
husband’s evidence, in which he sought to explain his early retirement in 2004
and to assert that he had no great prospects for the future. The judge roundly
rejected that as contrived for the purposes of achieving the best possible result
in the litigation. She held him to be an exceptionally able man with very bright
prospects for the future; and from that assessment we cannot depart. The wife
sacrificed a career in a human resources field, and, while she had retrained, it is
only in a field where ceilings are much lower.
“[38] Accordingly, it does seem to me that the departure from equality is
principled, given that this is to be a clean break and given that the clean break
should reflect what each has sacrificed in the past, what each can aspire to in the
future, and to their respective needs, within which is the judge’s assessment that
the wife’s housing need in central London amounts to something like £1.2m.
Whilst, of course, she has the freedom to arrange her finances as she pleases, once
the varied order has been implemented some weight must be attached to that
finding.”
9.1.5 The order was varied so that, from the sale proceeds of the fmh, W was to receive
£1.52m and H £819,000.
9.1.6 It might be queried how this rationale is consistent with Baroness Hale’s assertion
in Miller that: “In general, it can be assumed that the marital partnership does not
stay alive for the purpose of sharing future resources unless this is justified by
need or compensation. The ultimate objective is to give each party an equal start
on the road to independent living.”
10 Lump sums payable by instalments
10.1 Consider the following order:
(1) W do pay H a lump sum of £100,000 on 1 April 2011.
(2) W do pay H a lump sum of £100,000 on 1 April 2012.
(3) W do pay H a lump sum of £100,000 on 1 April 2013.
(4) On payment of the sum due under (1) above, H do transfer his interest in
27 Acacia Avenue to W.
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10.2 W pays the £100k lump sum on 1 April 2011. H transfers the property to W. W
then says she has run out of money and cannot pay the sums due in April 2012
and 2013.
10.3 Can W apply to vary the order to eliminate her obligation to pay the sums due
in 2012 and 2013?
10.3.1 A lump sum order is only variable under s 31 if it is a lump sum order payable
by instalments under s 23(3)(c). Where an order is made under this provision, the
court has the power to order security for future instalments. On a variation
application, the court has the power not just to recalibrate or reschedule the
payments, but also to extinguish some or all of the future instalments. As such,
it is a ‘one-way’ bet: the payee cannot apply to vary up the amount of future
instalments if the payer’s circumstances improve.
10.3.2 On one view, the above order is not variable, as it is an order for the payment of
lump ‘sums’ within s 23(1)(c). The court has the power to make an order for the
payment of a ‘lump sum or sums’ on only one occasion: it can of course provide
for more than one lump sum order on the same occasion. By choosing the above
drafting, the parties chose to have an order which was not variable, and where
the court would not have the power to order security for the payment of future
sums.
10.3.3 The opposite view was taken in H v H, a so far unreported decision of Parker J.
She held that any order for the payment of money over time was a lump sum
payable by instalments. This is the case even where the parties appeared to have
drafted the order as an order for ‘lump sums’. In substance, such an order is one
for a lump sum payable by instalments. The parties cannot contract out of s 31
by fancy drafting.
10.4 It is likely that there will be an appeal in this case.
© Michael Horton10 October 2011Coram [email protected]/barristers/profiles/michael_horton
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