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Home > Articles > 2013 archive

Finance and Divorce June 2013 update

Anna Heenan, solicitor and David Salter, Joint Head of Family Law at Mills & Reeve LLP analyse the financial remedies and divorce news and cases published in May











Anna Heenan, solicitor, and David Salter of Mills & Reeve LLP

As usual, the 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.

Law Society publishes practice note on "unbundling family legal services"
The note sets out the Law Society's view on good practice for those solicitors who offer partial retainers (i.e. acting for a client in relation to some matters only).

It is expected that the unbundling of legal services will become increasingly common as clients who are no longer eligible for legal aid will be unable to afford to engage a solicitor under a traditional retainer.

For more information, click here.


Divorcee can keep overpayment of pension made to her on divorce
The Pensions Ombudsman has determined that a divorcee can keep the overpayment made to her by Scottish Widows following her divorce.

The pension provider had provided the parties with an incorrect valuation, which resulted in the wife receiving an overpayment of £97,626 when the pension sharing order was implemented. Scottish Widows tried to reclaim the money.

The Pensions Ombudsman determined:

"I consider that the injustice caused to her by repayment would outweigh the injustice to Scottish Widows and it would be inequitable to require her to repay the money.

.... [T]here is no doubt that the overpayment arose through maladministration by Scottish Widows. Had that maladministration not occurred, Mrs. McNicholas would have known the true value of the pension and would have been able to negotiate either a larger share of the pension or a more favourable division of other assets. She has lost the opportunity to do either of those things, which in itself is an injustice arising as a result of the maladministration. In addition, if she had to repay the overpayment, she would be left in a worse position financially and would thus have suffered a loss as a result of the maladministration, for which she would be entitled to compensation. To require her to repay the sum, and then direct Scottish Widows to pay compensation, would be an unnecessarily cumbersome way to resolve matters.

Finally, this whole process has caused Mrs. McNicholas a great deal of distress and uncertainty. She has been faced with the prospect of having to repay this money and suffered the anxiety of wondering whether the arrangements she has made for the future may have to be revisited. I consider a payment should be made to reflect this."

Scottish Widows were directed:

• Not to take any steps to recover the overpayment from Mrs. McNicholas;

• Within 28 days to pay to Mrs. McNicholas the sum of £250 in respect of the distress and anxiety caused to her.

The decision once again emphasises the breadth of the Pension Ombudsman's jurisdiction, even if the compensation for distress appears rather meagre.

For more information, click here


Queen's speech includes criminalisation of forced marriage
The Crime and Policing Bill, announced in the Queen's Speech, will make forced marriage and the breach of a forced-marriage protection order criminal offences.

For the full story, click here


Case law update
This section of the update considers non-disclosure, strike out, variation of settlement and joinder of third parties and permission to appeal.

S v S [2013] EWHC 991 (Fam) (Sir Hugh Bennett) 29 April 2013
This case considered the wife's application to reopen financial remedy proceedings on the basis of the husband's material non-disclosure.

Background
The parties were married in 1993 and separated in 2010. They had three children, one of whom was T. The final hearing in the wife's financial remedy application took place in July 2012

One of the most significant assets in the case was the husband's shareholding in X Co Limited. The husband was the founder of that company and owned 63% of the issued share capital (the remaining shares were owned by Bank A).

The husband's case at the final hearing had been that he should retain all of his shares in X Co. After the parties' separation, the business assets would be non-matrimonial and the husband would be building them up until X Co was floated (i.e. an initial public offering "IPO") or purchased outright. Therefore, the wife should have no share in the ultimate proceeds. On the husband's case, his shares were worth £31.5m.

The wife argued that that the husband's shareholding in X Co was a matrimonial asset and that she should be entitled to 50% of the net proceeds, regardless of when a sale took place. On the wife's case, the husband's shares were worth £47.25m.

The husband's evidence at the final hearing was that no IPO or other exit was contemplated for at least three years.

The terms of the settlement
In the course of the final hearing, the parties reached a settlement and the Heads of Agreement were approved by the judge. The terms were as follows:

The wife was to receive

- £10.355m cash and properties (the husband was to retain around £5.64m of cash and properties)

- A deferred lump sum within 14 days of receipt by the husband of the cash proceeds of any disposal by the husband of his shares in X Co, calculated as follows:

o 30 % of the cash proceeds after deduction of costs of sale, CGT, £4m (paid into trust for T) and the sum of £1,714,286 (see below).

o £1,714,286 paid to the wife absolutely.

The terms of a draft order were agreed and approved by the judge. However, the order was never sealed. 

Non-disclosure
Following the hearing, the wife became aware that the husband had been planning for an IPO. Media reports following the final hearing suggested that X Co had appointed bankers to prepare an IPO for 2013. The reports also valued the company at $750m to $1 billion. The wife argued that this was material non-disclosure which vitiated the agreement.

The husband maintained that he had given full and frank disclosure and/or that any non-disclosure was not material:

1. X Co was being prepared for all eventualities (to build the business, a sale to a third party or an IPO);

2. It remained likely that it would take 3 to 7 years for him to exit the business;

3. X Co's growth record was not sufficient for an IPO;

4. The IPO planning in 2012 was to incentivise X Co's staff and stir up interest in the marketplace with a view to X Co being targetted for an acquisition;

5. No IPO had taken place in 2013 and none was being planned for the future;

6. In March 2012 (prior to the final hearing) the husband had doubted the merits of pushing for an IPO;

7. Several steps necessary for an IPO had not and still had not taken place; and

8. The valuations placed on the company by the press were pure conjecture.

These arguments were rejected. "It is absolutely plain to me that the husband's evidence… in July 2012... was seriously misleading. Whatever may have been the husband's misgivings or doubts about an IPO the fact is that planning for an IPO in early 2013 was in full swing from January to August 2012."

The judge cited Thorpe LJ's judgment in Bokor-Ingram v Bokor-Ingram [2009] 2 FLR 922 in which he said that:

"11... Any information that is relevant to the outcome must be disclosed.

18... The duty to disclose extends beyond what is certain on the date that the order is made to any fact relevant to the court's review of the foreseeable future."

Was the non-disclosure material?
The judge concluded that the non-disclosure was material. The reason for full and frank disclosure was that "unless the parties give full and frank disclosure of all material facts to each other and to the court, the court cannot 'lawfully or properly exercise its discretion'." It was clear that these facts would have been regarded as relevant to the exercise of discretion. The husband had laid a false trail and it was considered that "The very fact of a) dishonest evidence and/or b) suppression of documents must indicate some materiality..."

Did the material non-disclosure vitiate the agreement?
Had the judge known the true facts relating to the IPO scheduled for early 2013 then he would have progressed the hearing as far as possible and then adjourned it to wait and see whether an IPO did take place in early 2013 and, if so, on what terms.

"If therefore I had adjourned the proceedings in July 2012 to await developments, then it is plain that no IPO has taken place." The order that would have been made if proper disclosure had taken place would not have been substantially different from the heads of agreement that were approved. The order should, therefore, be sealed.


Vince v Wyatt [2013] EWCA Civ 495 (Thorpe, Jackson and Tomlinson LJJ) 8 May 2013

Background
The parties were married in 1981, when the wife was 20 and the husband was 22. They separated in around 1984. They had one child together and the wife's child from an early relationship was treated as a child of the family. They had no assets or income and chose to live a New Age or Traveller lifestyle.

In 1986, the husband began cohabiting with a new partner, with whom he cohabited for several years, and had another son. He married his current wife in 2006.

The only document that survived in relation to the divorce proceedings between the husband and wife was the Decree Absolute, dated 1992. It could not be established whether the wife had applied for ancillary relief (as it then was) in her petition or whether any order had been made. Whilst it was clear that there had been no substantive order in the wife's favour, she might have been the recipient of a nominal periodical payments order, all claims might have been dismissed by consent or there might have been no order.

In 1993, the wife began cohabiting with a new partner, with whom she had two more children. Her new partner was also of modest means. By the time of this hearing, that relationship had ended. However, no date for the end of the relationship is given in the judgment.

In 1995, the husband launched Ecotricity, a highly successful business in the wind industry which was worth many millions.

The application
In 2010, the wife issued an application for financial remedy and applied for an A v A costs allowance.

The husband made an application under FPR, rule 4.4(1) to strike out the wife's claim. Rule 4.4(1) provides:

"(1) Except in proceedings to which Parts 12 to 14 apply, the court may strike out a statement of case if it appears to the court –

(a) that the statement of case discloses no reasonable grounds for bringing or defending the application;

(b) that the statement of case is an abuse of the court's process or is otherwise likely to obstruct the just disposal of the proceedings;

(c) that there has been a failure to comply with a rule, practice direction or court order; or

(d) in relation to applications for matrimonial and civil partnership orders and answers to such applications, that the parties to the proceedings consent."

At first instance, the husband's strike out application was dismissed. On appeal, the husband's arguments included:

1. The wife had delayed for nineteen years before bringing her claim and this had prejudiced the husband because he was unable to establish whether any claim for ancillary relief was ever made and, if so, whether it was dismissed.

2. The wife's relationship following separation was tantamount to marriage. Whilst it subsisted, any claim against the husband would have had little credibility.

3. At any time when the wife's claim was live and should have been advanced, there would have been no order because of the "joint impecuniosity".

4. The husband's present fortune was all achieved years after the breakdown of the relationship, the divorce and the wife's new relationship had broken down;

5. The wife had consulted four different solicitors before approaching her current firm and had not raised any claims against the husband.

Thorpe LJ's judgment
FPR, rule 4.4 was intended to bring the court's strike out powers in civil and family proceedings into line with each other. In both sets of proceedings, the strike out rule was complementary to the court's inherent powers of case management.

Thorpe LJ concluded that:

"…the judge [at first instance] fell into error in his construction of the Rule and approached his essential task too narrowly, partly as a consequence of the way in which the husband's application was presented. It was not apt simply to ask was the delay inordinate and, if yes, was prejudice to the husband greater than the prejudice to the wife. He had to have regard to all relevant considerations within the history and exercise his case management powers not just to protect against the greater prejudice but also to husband the resources of the court.

It is well known that the judges of the family division are working under unremitting pressure and that waiting times for FDR appointments and trials in cases proceeding at that level are unacceptably long. Part of the case management function is to eradicate hopeless claims. Such a robust case management decision is illustrated by the case of Crossley v Crossley [2008] 1 FLT 1467 where Bennett J refused to allow a wife's claim to go to trial in the face of the clear provisions of the pre-nuptial agreement.

The facts of this case are extreme. Inpecuniosity has been the experience of all the wife's adult life. Both the men with whom she has entered into family life were seemingly equally impecunious. Her husband was the most improbable candidate for affluence. The wife no doubt can appeal to his sense of charity but in my judgment he is not to be compelled to boost the wife's income by the exercise of the jurisdiction under the Matrimonial Clauses Act 1973 the existence of which cannot now be plainly established and can only be presumed. He is not her insurer against life's eventualities."

In the circumstances, the husband's appeal against the A v A order fell away. However, Thorpe LJ was clear that he would have allowed the appeal:

"In my judgment in deciding whether to exercise the A v A jurisdiction the judge had to have regard to all the factors that bore on his discretionary decision to allow the case to go forward. This was not a conventional case of an impecunious wife facing an affluent husband and unable to achieve equality of arms without an A v A order. A reality that had to be faced was that at trial the husband might well defeat an application fraught with difficulty not only not recovering his own costs but also paying the costs of the unsuccessful applicant."

Jackson LJ's judgment
Whilst Jackson LJ agreed with Thorpe LJ's conclusion, he added some further comment about FPR, rule 4.4 and PD 4A and the relationship between this and the strike out provisions in the CPR (CPR, 3.4(2) and CPR, PD3A). He noted that:

1. The provisions of the FPR copied the wording of the CPR "so far as the subject matter allows. Such differences as exist arise from the different nature of family proceedings and civil proceedings. For example, a provision is needed to exempt litigation concerning children from the operation of FPR rule 4.4"

2. One important difference between the FPR and the CPR was that the FPR did not contain an equivalent of CPR, 24.2, which allows the court to give summary judgment.

Jackson LJ noted that in civil proceedings it was common for an application for strike out under CPR, rule 3.4 to be combined with an application for summary judgment under CPR, rule 24.2.

"It is perhaps unfortunate that the FPR contains no rule which is equivalent to CPR rule 24.2. This omission prompts the following question. Does the omission really mean that in proceedings for financial relief the court must allow a claim which has no real prospect of success to proceed to trial? Such a result would be very odd indeed and completely out of keeping with the modern approach to litigation. I find it hard to believe that this was the intention of the rule-makers.

We no longer live in an age (if we ever did) in which costs can be blithely ignored. The trial of a claim for financial provision may occupy many days of court time. The costs of such proceedings may run into hundreds of thousands of pounds, as in this case. Indeed they often run into millions of pounds. If the claim has no real prospect of success, I find it hard to believe that the court has no power to such stop such proceedings in their tracks.

In my view, the solution to this problem lies in FPR rule 4.4 (1) (b). The wording of this rule is identical to the wording of CPR rule 3.4 (2). The interpretation and operation of these two rules should be essentially the same, subject to such variance as arises because the one rule deals with family litigation and the other deals with civil litigation."

3. The court should adopt the same broad approach to the interpretation and application of FPR 4.4(1)(b) as it does to CPR 3.4(2)(b). However, unlike in the case of civil claims, there is no limitation period in family cases. "Nevertheless, in my view the court should not allow either party to a former marriage to be harassed by claims for financial relief which (a) are issued many years after the divorce and (b) have no real prospect of success. It must be an abuse of the court's process to bring such proceedings." The present case was a classic example of such, both because of the long delay and the other circumstances that doomed the wife's application to failure.

4. An application to strike out under FPR, rule 4.4 would only succeed "in rare and exceptional circumstances."


DR v GR and others (Financial Remedy: Variation of Overseas Trust) [2013] EWHC 1196 (Fam)
(Mostyn J) 10 May 2013
This case concerns a wife's application for variation of settlement.

Background
The wife was 68 and the husband was 69.They had been married for 31 years. Both had children from their previous marriages and they had one child together.

The total assets in this case were just over £2.5m, of which around £1.3m were held in the Brown Sugar Trust (a post nuptial settlement). The trust structure was as follows:

- The Brown Sugar Trust owned a Liberian company
- The Liberian company owned a UK company
- The UK company owned two further UK companies (Oakleaf Ltd and Deerpark Ltd)
- Oakleaf Ltd and Deerpark Ltd owned two retirement villages and various other assets all situated in the UK.

Variation of settlement
The wife applied for variation of settlement under s 24(1)(c) MCA 1973, which provides:

"(1)     On granting a decree of divorce, a decree of nullity of marriage or a decree of judicial separation or at any time thereafter (whether, in the case of a decree of divorce or of nullity of marriage, before or after the decree is made absolute), the court may make any one or more of the following orders, that is to say—

(c) an order varying for the benefit of the parties to the marriage and of the children of the family or either or any of them any ante-nuptial or post-nuptial settlement (including such a settlement made by will or codicil) made on the parties to the marriage [, other than one in the form of a pension arrangement (within the meaning of section 25D below)];"

The various companies had been joined to the proceedings and argued that respect for corporate personalities meant that the court could only make adjustments to the shareholdings of the Liberian company.

Mostyn J noted that in his earlier decision in Hope v Krecji [2012] EWHC 1780 (Fam) he had considered the application of s 24(1)(a) and s 24(1)(c). He also noted that whilst the ambit of s 24(1)(a), which allows the court to order a party to transfer property to which he is entitled in possession or reversion, was currently under consideration by the Supreme Court in Petrodel Resources Ltd & Ors v Prest & Ors, the Supreme Court had declined to hear argument on the ambit of s 24(1)(c).

He commented that if the argument advanced by the companies was correct, "it would mean that this jurisdiction would be almost totally emasculated. This is because it is only in rare cases that the settlement directly owns the underlying assets…"

The language of s 24(1)(c) was totally different from that of s 24(1)(a) and the term "settlement" was given a very wide meaning. Mostyn J considered Lord Nicholls' comments in Brooks v Brooks [1996] AC 375 and concluded that a nuptial settlement was "any arrangements which makes some form of continuing provision for both or either of the parties to a marriage." The cases of Ben Hashem v Shayif & Anor [2008] EWHC 2380 (Fam) and N v N and F Trust [2005] EWHC 2908 (Fam) made clear that that the power under s 24(1)(c) was a wide one. Extrapolating from the reasoning in those cases, Mostyn J commented:

"… I am of the opinion that if under an arrangement 'some form of continuing provision for both or either of the parties to the marriage' (which would include, on the authorities, the provision of accommodation) has been made from assets held by a group of family companies then the entire set-up, when viewed as a whole, is capable of amounting to a variable nuptial settlement. If the top company is owned by a trust of which the spouses are formal beneficiaries then the position is a fortiori."

Joinder of third parties
The companies and trustees of Brown Sugar had all been joined as parties to the proceedings. No application had been made for joinder and neither the husband nor the third parties had had notice: counsel for the wife simply turned up with a draft order providing for joinder. The trustees had not participated in proceedings and the companies had made their own application to be dis-joined.

Mostyn J reviewed the authorities and the requirements of the family procedural rules and summarised the position as follows:

"Drawing the threads together it seems to me that the applicable principles on the question of joinder are as follows:

i) Joinder either of trustees or of the underlying companies is not an essential pre-condition for the validity of a variation of settlement order.

ii) However, it is mandatory for beneficiaries under the age of 18 to be joined unless the court can say that the proposed variation does not adversely affect the rights or interests of any such child. The court has power to modify this requirement but should be very sparing in its exercise.  Failure to comply with this rule will not nullify any order later made. The application to join minor beneficiaries should be made at the first appointment following the issue of the application.

iii) The applicant, respondent, and the trustees and/or companies themselves can apply for joinder, but in each instance both the substantive terms of, and the procedure prescribed in, FPR 9.26B must be carefully complied with.

iv) The applicant for joinder must show either:

a) that there is an existing matter in dispute which requires for its resolution the joinder of the new party, or

b) that there is a matter in dispute between a party and the proposed new party which is connected to the main matters in dispute between the parties and that it is desirable to resolve all the issues together.

v) Under the first limb it must be clearly shown that an existing matter in dispute between the parties cannot be effectually and validly resolved without the joinder of the proposed new party.

vi) Under the second limb it must be shown that there is a separate dispute between a party and the proposed new party and that it is desirable to hear the matters together. The question of whether it is desirable to hear the matters together extends to the commonality of evidence as well as the saving of costs.

vii) If better enforcement of an order in a foreign jurisdiction is relied on under either limb there must be evidence that joinder would actually make a difference. Mere assertion or statements of belief will not suffice.

viii) An application for joinder must be made on notice under the Part 18 procedure, which requires 7 days' notice. Although the application strictly speaking does not need to be served on the proposed new party it would be better in the future if it were. The application must be supported by clear evidence.

Applying these principles here I can see no good reason why either the trustees or the companies were joined. Quite apart from the failure to comply with the prescribed procedure I cannot see how either limb of rule 9.26B is engaged. The substantive application for variation does not require the joinder of the proposed new parties in order that it can be effectually resolved. There is no separate dispute between the wife and either the trustees or the companies which it would be desirable to determine alongside the variation application. There is no evidence that enforcement of any variation order would be better achieved if the trustees or companies were joined. There is a mere assertion to that effect but that is belied by the decision of Mubarak.

In my judgment the companies succeed on their application to be dis-joined."

Pre-marital wealth
This case, like a number of other recent judgments, also emphasises the need for evidence and arguments as to pre-martial wealth to be advanced at an early stage. Mostyn J noted that:

"In 1975 the husband was aged 31 and was clearly a man of some substance. Unfortunately he only advanced his case about premarital wealth very late in the day and in such a way that has prevented any kind of careful quantitative appraisal of the scale of such wealth. He told me that in the divorce proceedings between him and [his first wife] he would likely have made an affidavit of means and he accepted that it would have been open to him to have applied for the retrieval of the court file from his first divorce and to have bespoken a copy of it. This would have told him and me with some precision the scale of his wealth at the time of the commencement of this relationship with the wife. But he did not do so and nor did he produce any corroborative contemporaneous documentary evidence of the scale of such wealth. The inevitable consequence is that this factor must be treated extremely sceptically and conservatively and if an injustice is thereby meted out to the husband then he has only himself to blame."

Mostyn J felt that the only fair way of dealing with the husband's premarital wealth was to identify which of the parties' assets had existed at the start of their relationship and which remained in the husband's direct sole ownership. He noted the wife had also received an inheritance during the marriage. In the circumstances, the total non-matrimonial property was £316,880.

The beneficiaries of the Brown Sugar Trust were (1) the husband, (2) any person who is or has been his spouse and (3) the issue of (1) or (2). Mostyn J noted the need to have regard to the interests of other beneficiaries when exercising his powers. He also noted that "the creation of this trust was plainly an agreed part of the financial architecture of this marriage. In her evidence the wife agreed that the object of the trust was to benefit all members of the family. On the other hand the assets of the trust are the product of the joint endeavour of the parties each making the fullest possible contribution in their different ways and are quintessentially matrimonial property." The fairest way of balancing these two factors was to allow 80p in £1 as matrimonial property.

The wife's housing and income needs (£1,106,000) were almost exactly the same as one half of the matrimonial property (£1,098,442). The wife was awarded £1,106,000 on a clean break basis.


CR v SR [2013] EWHC 1155 (Fam) (Moylan J) 22 January 2013
This case considered the husband's application for permission to appeal.

Background
The parties married in 1995 and separated in 2011. The husband was 45 and the wife was 46 and they had three children, aged 12, 14 and 16.

The former matrimonial home had a net equity of £330,000, but there were mortgage arrears of £13,000. In addition, the parties had credit card debts and school fees arrears totalling £39,000.

At first instance, the wife's net income was found to be just under £2,200 per month. The husband was found to be able to take drawings of £5,700 from his company.

The District Judge had ordered the transfer of the former matrimonial home to the wife. She had also ordered the husband to pay global maintenance of £2,750 for the wife and children. This left the husband with no capital, as his business was concluded to have no value, but continued liability for his debts.

The maintenance order made by the judge meant that after the husband had paid his rent, he was left with a net income of £1,200 per month.

Permission to appeal

The husband applied for permission to appeal on the basis that the wife did "too well". The wife received all the capital, leaving the husband with liabilities, and there was a significant imbalance in the parties' income positions.

There was some debate about the meaning of the first limb of the test for permission to appeal under FPR, rule 30.7, namely "the court considers that the appeal would have a real prospect of success." Moylan J concluded that the test for permission was that outlined by the Court of Appeal in Tanfern Limited v Cameron MacDonald & Anor [2000] 1 WLR 1311:

"Permission to appeal will only be given where the court considers that an appeal would have a real prospect of success or that there is some other compelling reason why the appeal should be heard Lord Woolf MR has explained that the use of the word of 'real' means that the prospect of success must be realistic rather than fanciful…"

The intention of the FPR rules was to align the procedure for appeals with the test that applied in relation to appeals from the Court of Appeal. This was supported by the White Book, Vol 1 para. 52.3.7.

A real prospect of success?
Counsel for the husband placed reliance on the case of A v L (Departure from Equality: Needs) [2012] 1 FLR 985. Moylan J took the view that there were "significant similarities" between that case and the facts in this case. "The effect of the District Judge's order in this case is that the wife receives all of the capital of the parties and, even on the basis of assumed drawings of £5,700 per month, there is a significant imbalance in her favour in their income positions."

In the circumstances, "the husband had a reasonable prospect of success in that he has a reasonable prospect of demonstrating that the effect of the orders made by the District Judge places them outside the bracket of reasonable orders."