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Finance and Divorce January 2013 Update

Anna Heenan, solicitor and David Salter, Joint Head of Family Law at Mills & Reeve LLP analyse December’s financial remedies and divorce news and cases.



Anna Heenan and David Salter both of Mills & Reeve LLP

As usual, this update is divided into two parts:

1. News in brief
2. Case law update

News in brief
This section of the update highlights some of the news items that will be of particular interest to practitioners who advise on divorce and financial remedy cases.

State pension changes announced
The Department for Work and Pensions has published a draft Bill on pension reform together with an impact assessment. The Bill will introduce a flat rate pension to replace the current three tier system of the basic state pension, additional state pension and the graduated state pension. This will only affect those retiring after 6 April 2017.

There are a number of implications of this Bill for family lawyers. For further analysis, click here.

Family Justice Council publishes best practice guidance on FDR appointments
The Money and Property Committee of the Family Justice Council have published guidance to try and address "significant variations in the approach taken to FDRs by judges and by practitioners across England and Wales."

For more information, click here.

Marriage (Same Sex) Couples Bill published
The Bill will:

• enable same-sex couples to marry in civil ceremonies
• allow those religious organisations which wish to do so to opt in to conduct marriage ceremonies for same-sex couples
• protect those religious organisations which do not wish to marry same-sex couples from successful legal challenge.

For more information, click here.

Family Law Bar Association responds to Law Commission proposals
Whilst the FLBA agrees with the Law Commission's conclusions about the reasons that reform is needed, the response asks the Law Commission to consider "positive factors" which support a discretionary system:

"(a) the current discretionary exercise means that each decision is fact specific and tailored to the individual circumstances of the parties.

(b) thus, the current system is generally perceived as being fair.

(c) the current system strives not to discriminate – whether for or against husbands or wives, breadwinners or homemakers.

(d) the current system is flexible in that judicial interpretation of the Matrimonial Causes Act 1973 has allowed the law to adapt to changing social norms and expectations. The survival of s.25, in particular, for almost 40 years shows the real benefit of a common law system of judicial interpretation of the primary statute."

The response considers that the current system does promote settlement and comments on the fact that the majority of cases settle as part of the FDR process.

For the full story, click here.

Case law update
This section of the update considers cases involving committal applications, disclosure and the implications of a lump sum by instalments as opposed to a series of lump sums.

Young v Young [2013] EWHC 34 (Fam) (Moor J) 17 January 2013
Moor J considered two applications by the wife:

1. To commit the husband to prison for contempt of court of Moor J's order of 12 November 2012; and

2. To activate a suspended committal order made by Parker J on 29 June 2009.

Moor J considered that if the husband was in breach of the first application then he did not need to deal with the breach of Parker J's order. However, the breach of Parker J's order was relevant to the sentence, if the recent contempt was proved, and to any applications to adjourn the matter further given the length of time the husband had already had to cure any deficiencies that remained.

The husband alleged he was penniless and bankrupt. The wife claimed that he was worth up to £400 million and that he had hidden all his resources to avoid his obligations to her and their children. Whilst Moor J made clear that he was not deciding that issue, "[i]t is, however, equally clear that, to be able to decide where the truth lies, it is vitally important that the husband provides full and frank disclosure of his financial circumstances, to include the relevant documentation in support of his contention."

The history was as follows:

• 24 June 2008: The wife was given permission to serve a further questionnaire on the husband;

• 25 July 2008: The wife's further questionnaire was served;

• The husband did not respond;

• 24 October 2008: The husband was ordered to respond to the questionnaire by 7 November 2008 and a penal notice was attached;

• 27 March 2009: The husband was ordered to provide the documentation sought in the questionnaire by 1 May 2009;

• 1 May 2009: The husband provided some answers, including letters of authority to various third parties;

• 18 May 2009: The wife was not satisfied by the husband's answers and issued a committal summons;

• 20 May 2009: The summons was adjourned on the basis that the husband should do his utmost to provide the answers;

• 3 June 2009: The wife served a further questionnaire;

• 29 June 2009: Parker J committed the husband to prison for six months for contempt of the orders of 24 October 2008 and 27 March 2009. The term of imprisonment was suspended for 92 days on the basis that the husband provide the answers and documents by 7 September 2009;

• The husband did not provide further answers by 7 September 2009. His case was that he was detained under the Mental Health Act 1983 from 28 August – 10 September 2009;

• 28 September 2009: Parker J extended the time for the husband to serve his replies to 9 November 2009;

• 11 November 2009: The husband served his replies along with 50/51 files of documents and an Affidavit setting out his business dealings. The wife argued that this did not purge the contempt;

• 13 November 2009: The question as to whether the committal order should be activated was adjourned;

• 19 November 2009; The wife set a letter setting out the alleged deficiencies in the husband's replies;

• 16 December 2009: The husband replied that he would "…use his best endeavours to answer…", but no reply was received;

• December 2009: The husband was ordered to make interim maintenance payments. He paid nothing and, at the time of this hearing before Moor J, the arrears were close to £1 million. However, there had been no Judgment Summons which meant there was "… no finding of fact to the criminal standard that the husband has had the means to pay and has deliberately refused or neglected to do so. It follows that I should not take this default into account in relation to this application."

• January 2011: An order was made that there should be no further application to activate the committal without prior permission of the court;

• 14 April 2012: The wife's served a schedule of deficiencies and further supplementary questions prepared by her forensic accountants;

• October 2012: The wife successfully applied to adjourn the final hearing from November 2012. As a result, the wife applied for permission to activate the committal. Permission was granted;

• 12 November 2012: Moor J ordered the husband to produce answers to the schedule dated 14 April 2012, full answers to the wife's questionnaire dated 3 June 2009, a witness statement and copies of various tax returns by 10 December 2012. A penal notice was attached;

• 14 January 2013: The husband purported to answer the order of 12 November 2012.

Was the husband in contempt of court?
The criminal standard of proof applied (the judge had to be satisfied beyond reasonable doubt) and the burden of proof was on the wife. In considering his order of 12 November 2012, Moor J commented that "I made it very clear to [the husband] that the situation was serious and that, if he did not comply, there would be an application to send him to prison for contempt. He left court under no illusions as to the serious situation he faced."

Whilst it was clear that the husband had not complied with that order by 10 December 2012, he purported to do so on 14 January 2013 (the afternoon before the committal hearing). "I take the view that, if in so doing, he has remedied entirely the deficiencies in his disclosure, it would not be appropriate to commit him to prison now for being late as the main objective, namely to prove his current financial position, would have been satisfied. I therefore take the view that I must examine his answers to see whether or not he remains in contempt."

Moor J noted that the husband had only gone to see a solicitor three weeks after the order of 12 November (and only 4 days before the husband was due to comply with the order). The husband had also said that he then became ill. Moor J noted that the day the husband sought medical treatment was the day after her enquiry agent attempted to serve him with the application for committal. "I am satisfied that he knew the nature of the application the enquiry agent was attempting to serve upon him." Moor J considered the husband's medical report and concluded that the husband was in a position to deal with the application and there was no unfairness to him in proceeding with it:

"The wife says that his admission to hospital is exactly what happened in 2009 when he faced prison. I agree, but in this regard I am not prepared to find that this is contrived. It may be that the imminent threat of prison has made him unwell. That is, however, no excuse for contempt of court. There would not have been a threat of imprisonment if he had complied fully with the court order."

Moor J was "satisfied beyond reasonable doubt" that the husband's replies served on 14 January 2013 did not comply fully with the order of 12 November 2012. The husband had failed to provide a full response to the question in the wife's questionnaire of 3 June 2009 which asked the husband to set out the sources of his funding from March 2006 – December 2012 and to provide documentary evidence in support:

"As I have already indicated, this is a vital part of the case… The vital issue… is the documentation to show where this money came from. He produced nothing. He says he does not have any documents in his possession, power or control as he does not have the bank statements of his friends. He adds that 'due to the negative press generated by this case, none of these third parties will provide the [husband] with the details of the payments they made.'

I reject this contention completely. It is absurd to say that these friends are prepared to support him financially to such a huge extent, but that not one of them is prepared to produce any documentary evidence that the money came from them. There is no evidence whatsoever that he has tried to obtain such information from them. He knew what was required. I conclude that he has deliberately failed to comply. I am sure to the criminal standard that he is in breach of my order."

In relation to the wife's questionnaire of 14 April 2012, Moor J commented:

"… The issue here is also fundamental to this case. The husband says that he has been the victim of financial meltdown and is now hopelessly insolvent. The wife's response is to ask him to prove this assertion by the production of documentation to verify his financial losses.

I have read with care the husband's response. I regret to say that the document does not advance the position at all….I am satisfied that there has been a wholesale failure to comply with the court order. The husband has simply not produced the documentation to verify his financial losses."

Moor J sentenced the husband to six month's imprisonment. Both contempts were so serious that a fine could not be justified and, in any event, the husband would not pay it. A suspended sentence could not be justified either as the husband had not taken the opportunities already afforded to him to comply.

The husband had asked for the matter to be adjourned until he had legal representation, but it would have been open to him to have legal representation on this occasion and the judge was satisfied that there was nothing a lawyer could have done to change the outcome of the case. "There has been a flagrant and deliberate contempt over a very long period of time."

Parker J's suspended committal was not activated.

Moor J concluded:

"You are, at any stage, entitled to apply to me to purge your contempt. This will involve you finally complying with the orders for disclosure. If you do now comply, I would be very sympathetic to any application you make to purge your contempt. Whilst I recognise that this is more difficult to do so once you are in prison, you have brought this entirely upon yourself. You have had more than sufficient opportunity to comply with the various court orders. The court cannot go on giving further opportunities indefinitely."

Linda Thursfield v David Thursfield [2012] EWHC 3742 (Ch) (HH Judge Purle QC) 21 December 2012
The parties were ex-spouses (for ease, they are referred to as the "husband" and the "wife" in this summary). The wife's financial claims had been dealt with in Michigan (the order from those proceedings was now under appeal) and she was trying to enforce that order in England. By this application, the wife sought disclosure relating to the David Thursfield Family Trust, which she claimed had been established by the husband to defeat her matrimonial claims.

The judge had made various freezing orders and disclosure orders, which the husband unsuccessfully appealed. The husband had also been found guilty of contempt of court in failing to comply with disclosure orders.

The husband claimed that his only assets were interests in two pension funds. He said that he had purchased a property in the Bahamas in 2005 which was held in an irrevocable trust, of which his new wife was the sole beneficiary. The trustee was a private trust company. The husband claimed to have no interest or control over the trust. However, it was clear that he was the settlor and it was also found that in the past he had exercised control over the same trust company in relation to a different property.

The judge concluded that:

"All the court has been told of the funding arrangements is that the Defendant's second wife is the funder. The terms of the funding and (more importantly) the source of those funds is not revealed. The existence of the David Thursfield Family Trust has, however, been revealed for the first time.

There is every reason to believe that the David Thursfield Family Trust is still the recipient of assets which were once the Defendant's and may still be his for all practical purposes. In those circumstances, the disclosure sought is reasonably ancillary to that required by the previous orders, which have not been properly complied with. I accordingly find that I have jurisdiction to make the order sought to ensure that the orders previously made are effective, and that it is right to do so. Mr Maguire for the Defendant complains again of privacy intrusion but, as I previously held, this is sometimes necessary

Counsel for the wife referred to the case of North Shore Ventures Ltd v Anstead Holdings Inc [2012] EWCA Civ 11 in support of her application. That case concerned the issue of whether the appellants had "control" of the documents for the purpose of CPR, 71.2 (which deals with orders for a judgment debtor to attend court) and CPR, 38.1 (which sets out the scope of Part 38 which deals with the procedure by which a claimant may discontinue his claim).  Counsel for the husband sought to distinguish that case on the basis that in that case the Claimant in that case was a judgment creditor and was a former beneficiary of the trust; here the wife was not. This argument was rejected:

"The jurisdiction I am exercising is the power to grant an injunction, in this case a mandatory injunction to provide information and disclosure, under section 37 of the Senior Courts Act 1981. The order is justified if I reach the conclusion that the [husband] can in fact provide the necessary information and disclosure, or will be able to do so, irrespective of technical notions of control. I am satisfied that he can and will be able to provide the necessary information and disclosure. As it happens, the evidence concerning the [husband's] control of Prospect House also indicates that he is likely to have control of the documents sought, but that is not technically a pre-condition of my power to make the order."

Hamilton v Hamilton [2013] EWCA Civ 13 (Baron J, Thorpe LJ and Kitchin LJ) 17 January 2013
This case considers the variation of lump sum orders and the difference between an order for a series of lump sums and an order for a lump sum by instalments.

The original order in this case provided:

"1. "The Wife shall pay or cause to be paid to the husband the following lump sums [emphasis added];

(i) £150,000 within 7 days of the date of this order. [In fact this was paid on the 26th October 2007 prior to the date of the original order].

(ii) £150,000 by 30th April 2008 [Some £90,000 of this sum was paid on the 15th September 2008 i.e. 5 months late, and there remains £60,000 unpaid to date]

(iii) £50,000 by 30th April 2009 [Unpaid]

(iv) £50,000 by 30th April 2010 [Unpaid]

(v) £50,000 by 30th April 2011 [Unpaid]

"2. The Husband shall transfer to the Wife simultaneously with the payment to him of the first lump sum referred to in paragraph 1 above all his legal and beneficial interest in the [former matrimonial home].

"4. Upon completion of the transfer of [the former matrimonial home] and the payment of the lump sum …..[the usual drafting dismissing all the parties' life and death claims against each other].

"6. There be liberty to apply as to the implementation and timing of the terms of this order""

At the time the order was made, the wife ran a business valued at £1.5 million and the husband was unemployed with substantial debts (although the wife alleged that he was earning money "under the counter" and had hidden assets). Following the order, the wife's business went into administration and she was unable to pay all of the sums owing under the order.

The wife applied to vary the order under section 31 Matrimonial Causes Act 1973 (MCA). She argued that the order was a lump sum by instalments under s 23(3)(c) MCA (and thus could be varied), whereas the husband argued that the order was for a series of lump sums under s 23(1)(c) (and so could not be varied). The Court of Appeal noted that:

"Frequently the parties will wish to achieve a clean break which is not susceptible to future variation under section 31. To seek to ensure this, members of the specialist bar and solicitors have adopted a now well established practice whereby, to obviate the possibility of a variation at some future time of delayed capital payments, a series of specific single lump sums is made in one order. This practical approach has been a valuable tool for many years. Whether this method of drafting has the effect in law that practitioners have imagined has not as yet been decided by this court. This is the paradigm case which will enable the court to clarify this issue and put it beyond doubt."

The Statutory Provisions

S 23(1) (c)
"that either party to the marriage shall pay to the other such lump sum or sums as may be so specified."

S. 23(3) (c)
"without prejudice to the generality of subsection (1) (c)…. An order under this section for the payment of a lump sum may provide for the payment of that sum by instalments of such amount as may be specified in the order and may require the payment of the instalments to be secured to the satisfaction of the court"

S. 31
"(1) Where the court has made an order to which this section applies, then, subject to the provisions of this section… the court shall have power to vary or discharge the order or to suspend any provision thereof temporarily and to revive the operation of any provision so suspended.

(2) This section applies to the following orders, that is to say –

(d) any order may be virtue of s 23(3) (c)… above (provision for payment of a lump sum by instalments)"

Extending the time for payment of a lump sum order
At first instance, Parker J held that if there was no power to vary an order under s 31 then she could not extend the time for payment of a lump sum under s 23(1)(c) by "any significant period". She referred to the case of Masefield v Alexander (Lump sum: extension of time) (1995) 1 FCR 100 in which the wife had sought to enforce default provisions because the husband was late in making a lump sum payment which had been ordered under s 23(1)(c). In that case, Butler-Sloss LJ stated that it was necessary:

"to look at the purpose and effect of the application to extend time to see whether in truth it was intended to strike at the heart of the lump sum or whether it was a slight extension… of no great important which did not go to the main or substantive part of the order."

The court in that case did extend the time for payment of the order and Butler-Sloss LJ commented:

"there is no hard and fast rule or line to be precisely drawn it is a matter for the discretion of the court. It is not however an invitation for spouses to delay the payment of lump sums or to avoid compliance with strict timetables. In the majority of cases it would not be right for the court to intervene particularly in the case of a consent order freely entered into by the parties."

The Court of Appeal agreed with Parker J's analysis in this regard.

Series of lump sums vs. lump sum by instalments
The first instance decision of Parker J in this case was appealed on 5 grounds:

"a) The Judge was wrong in law in holding that any order for the payment of lump sums over time must be a "lump sum payable by instalments with section 23 (3) (c)" and therefore variable under section 31.

b) Parker J was wrong in holding that paragraph 1 in the relevant order in this matter was a lump sum by instalments and thus variable

c) She was wrong in law in holding that section 31(2) (d) permits the court to vary the quantum of the lump sum ordered as opposed to the timing of the same

d) In the alternative, if there was a power of variation, then the judge was wrong in principle to vary the lump sum in this case given the facts as found. Furthermore, complaint is made that the manner in which the variation was undertaken was "too complicated" and the extension of time permitted was excessive.

e) The last ground asserts that the judge was plainly wrong and/or perverse in finding the Wife was not the true beneficial owner of the company for which she worked

At first instance, Parker J commented that "in every case where there is to be a staged payment then this is in reality a lump sum by instalments and that it is not possible to protect the payee by drafting the order as a 'series of lump sums'." In coming to this conclusion, Parker J had considered the judgment of Coleridge J in Masefield v Alexander that

"… it is sometimes a matter of drafting in this division a consent order to try and express what is in truth a payment by instalments of separate lump sums in order, apparently, to remove from the court the power to interfere under s.31(2)(d). I am not satisfied that this is in fact possible. The court will in each case look at whether or not the reality was that it was a lump sum payable by instalments rather than merely a bit of wording to try and defeat the court's powers."

Baron J, giving the judgment of the Court of Appeal, concluded:

39. "I do not consider that the purported expositions of the law by Coleridge J and Parker J are correct as they stand. Section 23 (1) (c) gives the Court the power to order a lump sum or sums at one time. Save for the limited exception as to timing which we have highlighted above, orders made under this Section are not variable. This accords with the provision of Statute which does not include orders made under this section within the terms of Section 31. The reason is obvious in that there must be a mechanism whereby parties can agree or the Court can effect a clean break. This analysis has the manifest advantage that it enables finality in the litigation.

40. In the light of this, I accept that Ground 1 of the appeal is well founded and that Parker J was wrong to conclude that any order for the payment of lump sums over time is an order for a lump sum by instalments.

41. [Counsel for the husband] submitted that where a consent order is drafted in the form of a series of lump sums under section 23 (1) (c) then that is "an end of the matter" because the court cannot ever interfere or seek to discover/interpret whether the order (as drafted) accurately reflects the underlying agreement that was approved by the Judge. I do not accept that argument. Where there is a disagreement as to whether the terms of the order are, in reality, correct then the Court retains jurisdiction and must assess what the parties agreed against the objective factual matrix of what occurred during the relevant period. Ordinarily the language of the order will settle matters but, in the event of a dispute as to the nature of the agreement, the Court is entitled to look at the surrounding facts and circumstances which bear upon the terms as drafted. This investigation is perfectly proper because it is evidence of the stages that preceded the perfection of the Court order. To be clear, the test is objective as the court is not looking to assess the subjective beliefs of the parties rather it is looking at the objective factual matrix to interpret what was agreed in the light of the words used and communications that passed.

42. In the circumstances the Judge was correct to embark upon an investigation. As she expressed in her Judgment, she was not assisted as she would have liked but there was sufficient evidence upon which she was able to conclude that, in this case, these parties had agreed a lump sum of £450,000 which was to be paid in instalments over time. This finding was open to her despite the wording of the order. Accordingly, although she misdirected herself on the meaning of section 23(1)(c), she was entitled to hold that, objectively, this case did not fall within that section but rather within section 23(3). Her analysis on the facts cannot be faulted and must stand. In the light of this Ground 2 fails.

43. The learned Judge did not vary the amount of the lump sum (namely £450,000) she simply adjusted the period for payment. Ground 3 seeks to assert that no Court can ever vary the quantum of the award. Parker J did not do so. Therefore this ground is of no practical relevance in this appeal. [Counsel for the husband] sought to submit that it was because, if the Judge thought she could vary quantum as well as timing, this would have had an inevitable effect upon her exercise of discretion. In logic I do not consider that this argument is sustainable, particularly given the manner in which the Judge dealt with the case. In any event (although it is not directly relevant in this appeal) I cannot see how the basic argument can be correct. The section is widely drafted. The Court is given the power to vary a lump sum and it stands to reason that that power must extend to quantum as well as timing.

44. Ground 4 asserts that the Judge was wrong to vary as she did. Her exercise of variation under Section 31 was a matter of discretion. There was no misdirection in law and clearly her order was within the broad range of orders that could be made. She was duty bound to give consideration to the needs of the two young children whose home with their mother was in jeopardy, because it was the only source of capital with which to satisfy the Husband's claim. Her decision was just in the circumstances. Accordingly Ground 4 fails.

45. Ground 5 seeks to assert that the Judge was wrong to hold the Wife has no beneficial interest in the new company for which she worked. We have already commented that the evidence was far from clear but this was not the Judge's fault and she made no error in reaching her conclusion. The complaint is essentially that she failed to find the facts as the Husband would have wished and that is not a sustainable Ground of Appeal.

46. Consequently, although I have concluded that the Judge went too far in expressing her view of the effect of Section 23 (1) (c), she made no error in reaching her conclusions. For that reason I would not disturb her order.

47. Finally, in future, parties may consider that a recital at the beginning of an order which sets out the basis of the agreement in terms of a potential variation would put disputes of this type beyond doubt."