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The Law Commission Report: Enforcement of Family Financial Orders – Enforcement or Variation?

Joseph Rainer, barrister, Queen Elizabeth Building, analyses the implications of the Law Commission’s report Enforcement of Family Financial Orders.













Joseph Rainer, barrister, Queen Elizabeth Building

Enforcement of Family Financial Orders, the Law Commission report and proposals was published on 14 December 2016. It contains a raft of proposals for a complete reform of enforcement procedure and practice in financial remedy proceedings. It is, of course, not yet clear which of these proposals will be endorsed, but if the bulk of the recommendations are adopted, the effect will be a sea change for matrimonial practitioners in enforcement matters. 

SUMMARY OF ACTUAL RECOMMENDATIONS

The following are the principal recommendations, in summary form:

1. Judges should be directed to consider whether terms as to enforcement should be included whenever a financial order is made (this should not influence the quantum of an order, but should ensure that the court considers how the order it makes is most likely to be satisfied).

2. Judges at first instance should be directed to consider noting for the court file a summary of their main findings in relation to those assets of the  debtor which may be relevant to future enforcement proceedings.

3. The appointment of an enforcement liaison judge in each designated family judge area to help build expertise in enforcement in his or her area and improve the management of enforcement proceedings, as well as providing training and information to other judges and being the point of contact for judges with enforcement questions. The enforcement liaison judge may also hear any particularly complex enforcement cases.

4. A number of changes to the 'general enforcement application' (application for enforcement by such method as the court may consider appropriate) so as to transform it from a 'collection of standalone enforcement remedies brought together under one application' into 'more of an enforcement process with powers and remedies of its own'.

5. The addition of a comprehensive set of standalone procedural rules for the general enforcement application.

6. An automatic requirement for the debtor to provide financial disclosure in a standard form designed for the purposes of enforcement ("an enforcement financial statement") before the first hearing in a general enforcement application. This would not be automatically required in an application for enforcement by specific method, but the court would have the power to order its completion nonetheless. Failure to complete the statement would unlock the court's coercive powers, and a debtor may be held in contempt of court.

7. Information requests and information orders to be brought into force for enforcement of financial orders to support the disclosure exercise (likely in the event that a debtor failed to complete an "enforcement financial statement"). This would be underpinned by The Tribunals, Courts and Enforcement Act 2007 ("the 2007 act").  An information request allows the court to request information on a judgment debtor from a government department (e.g. HMRC), whilst an information order can compel a third party to provide information about a debtor (e.g. a bank). The court should be able to obtain information from: the DWP, HMRC, credit reference agencies, banks and building societies, the Land Registry, and pensions providers. The information sought would be limited to the 'minimum necessary to facilitate the enforcement of a family financial order'. Information requested or ordered should be passed to both parties, but creditors are to be informed that such information may not be used outside proceedings, and warned of sanctions that would follow misuse of such information (contempt of court which could lead to imprisonment).

8. The system of 'tracking' (also contained in the 2007 act) should be introduced – this enables the court to request from HMRC the name and address of the debtor's current employer – this could assist in weighing up the efficacy of an attachment of earnings order.

9. Forms used in financial proceedings would be changed so that they require the parties' National Insurance Numbers – this would ensure the information required to subsequently obtain information from HMRC in enforcement proceedings would already be on the court file.

10. Clarification of the law – the enforcement methods available on a general enforcement application could be made without the need for a debtor to make a further, specific application for that order.

11. Provision for bringing three new categories of assets within the court's enforcement powers:

a. The debtor's pension – it is proposed that the court should have the power to make pension sharing orders and pension attachment orders in proceedings for the enforcement of financial orders that did not originally relate to pensions. A pension order should only be available on a general enforcement application, so it would not be possible to for a creditor to make a standalone application for a pension order.

b. Monies due to become payable to the debtor – there is a recommendation that the ambit of a third party debt order is extended so that it can operate on a periodic basis. This would enable enforcement against sums that become owing to the debtor after the order is made, and would also allow for the ongoing enforcement of sums due under a periodical payments order – the order would automatically recover what the monies due in the preceding month. Such a third party debt order could operate against a company that regularly pays a self-employed debtor (contractor) for his/her services. 

c. Funds in joint accounts – the court should have the power to make third party debt orders against any funds in the debtor's name including joint accounts. The third party debt order would only be available in respect of the funds in the account belonging to the debtor. The court must thus ascertain how the funds in the account are owned – there would be a starting presumption that the funds in the account are held in equal shares. It will then be possible for the other joint account holders (or the debtor or creditor) to make representations that the funds are not owned equally.

12. Addition of two new species of coercive order (available either on a general enforcement application or in an application for a specific coercive order):

a. Disqualifying debtors from driving;

b. Prohibiting debtors travelling from outside the UK, and;
Coercive orders could be made where the court was satisfied that the debtor has the ability to pay (at the time the coercive order is made, to ensure the order is not punitive). Before making one of these coercive orders the court should take into account all the debtor's circumstances of the case, including: the extent of the debtor's failure to pay what is owed, the other enforcement methods that are available to the creditor and the likely success of those methods, the likely effectiveness of a coercive order in achieving payment of the debt, the effect of making the order on the debtor's ability to make a living, and the effect of making the order on any dependents of the debtor. Coercive orders should last up to 12 months, and would be discharged on full payment of arrears due.

13. A consolidation of the procedural rules so that the rules dealing with enforcement are comprehensively stated in the Family Procedure Rules, eliminating the need for cross-referral between the FPR and CPR.

14. The creation of a new Enforcement Practice Direction, which should provide a narrative statement of the procedure for bringing an enforcement application so that it provides a "route map" for enforcement proceedings (thought to be particularly helpful for litigants in person).

15. Better guidance to be provided to litigants in person – information on methods of enforcement to be provided at the time the financial order is made by way of a pro forma summary on the back of the court order that would state the enforcement methods available, inform the parties as to which method could be used to enforce different financial orders, and explain the basic criteria for different enforcement methods. This pro forma information section should also refer the parties to a new comprehensive guide on enforcement published by an official source – this guide would set out a 'step by step' approach, possibly using flow diagrams, videos and online links to court forms, and would be written in plain English and available online and in hard copy format.

THE GENERAL ENFORCEMENT APPLICATION

Whilst the two new proposed coercive measures (passport confiscation and driving disqualification) made BBC News headlines, the reform proposed by the Law Commission constitutes a complete restructuring of the 'general enforcement application'. Practitioners will know that the 'application for such method of enforcement as the court considers appropriate' in Form D50K was introduced by the FPR 2010, and was an original feature, with no sibling regime contained in the CPR at the time. The Law Commission propose transforming this single application for a menu of enforcement options into a distinct and separate category of satellite proceeding, with its own uniform disclosure requirements, procedural rules and remedies.

Many will welcome a move in this direction. Enforcement is not a summary or automatic procedure, and it involves an exercise of the court's discretion (albeit a restricted one). The Law Commission invites the government to embrace this fact, and give the court the tools it needs to conduct this discretionary exercise fairly and properly: visibility of relevant financial disclosure and a clear procedural framework to operate within.  A recurring motif in the report is the assertion that reform of the 'general enforcement application' will make things easier for litigants in person, and as a result easier for the court. This is a fair assertion.

Some will have noticed a striking similarity between the proposed restructuring of the 'general enforcement application' and the truncated Chapter 5 procedure generally used in applications for variation of financial orders (which does not require questionnaires, has a shortened standard disclosure statement in Form E2, and automatically lists for a 'first hearing'). The Law Commission are clear that their envisioned 'enforcement financial statement' would not be as comprehensive as a Form E, which was considered to be 'too onerous', and going 'beyond what is required for the purposes of enforcement'. The report records that the Central Family Court is currently making use of an amended Form E2 to collect information from judgment debtors in general enforcement applications, and says of this practice: 'in the absence of any new form, that approach seems sensible, though we consider that the Form E2 does not capture all the information that it would be desirable for the court to have at the first hearing of a general enforcement application'.

MISSION CREEP: TO WHAT EXTENT DOES THE GENERAL ENFORCEMENT APPLICATION STRAY INTO VARIATION TERRITORY?

Some may feel slightly uneasy about the creation of an entirely new species of proceedings. It is not clear to what extent the general enforcement application would not only resemble the procedural form of a variation application, but also stray, perhaps unwittingly, into the legal territory of variation.

The most visible symptom of a blurring of boundaries between enforcement and variation in the report is the Law Commission's proposal for the availability of pension orders on enforcement, in the absence of pension orders in the first instance proceedings. The Law Commission were referred by two consultees to the civil case of Blight v Brewster [2012] EWHC 165 (Ch) as a precedent for the court finding a way to enforce a debt due under a court order against a debtor's pension. In that case, the court ordered the debtor to elect to draw down a lump sum, which in turn created a debt owed by the pension fund to the debtor, which could subsequently be subject to a third party debt order in favour of the creditor. This dual-stage enforcement order had the effect of extracting liquid capital from the debtor's pension fund and diverting it immediately to the creditor.

The Law Commission propose that the need for such innovative mechanisms could be avoided if the court had the ability to make pension sharing (and pension attachment) orders on enforcement applications. Sensibly, the Law Commission acknowledge that there are a number of practical difficulties with this route, not least that in some cases, expert actuarial evidence may be required to determine what pension share would be required to satisfy the debt, given the unreliable and subjective nature of CEVs for defined benefit pension schemes. 

Despite citing Blight v Brewster as an example of how enforcement against a pension could satisfy a liquid debt immediately, the report goes on at paragraph 9.19 to acknowledge that 'a pension order will not result in any payment to the creditor until he or she reaches retirement age… if, for example, the pension order is made to enforce a lump sum that was intended for the purchase of a house, a pension fund may be of no practical use to the creditor in the short term… for this reason, pension orders might be an enforcement tool that would not be used very often'. This concession falls just short of addressing the problem of principle head on.

Capital orders are generally underpinned by either the 'needs' or 'sharing' principles. Often, the distribution exercise is conducted distinctly in respect of liquid and illiquid (commonly pension) assets. Returning then to the Law Commission's hypothetical scenario, where a capital award is made to meet a party's housing needs to be met from the liquid assets. As acknowledged by the Law Commission, a pension sharing order in such a case would not meet the creditor's housing need: the basis for the original order has been unravelled.

In such an example, if the original order was underpinned by needs, a pension sharing order that cannot meet the parties' housing needs would serve as an effective variation of the original order. It would amount to a reconsideration of the order in light of the debtor's non-compliance and the unavailability of capital to meet the award, and a subsequent application of the sharing principle to compensate the creditor in the absence of liquid assets. This issue is even more conspicuous in a hypothetical scenario where, in the absence of liquid assets to enforce against, a creditor seeks to enforce arrears of maintenance against a pension. Naturally, the maintenance arrears would represent a creditor's accrued income need shortfall, but a pension sharing order made on enforcement would not serve to meet said shortfall at the relevant time. A pension sharing order is incapable of meeting the immediate need of a maintenance creditor who has not reached retirement age. It is thus difficult to envisage a scenario where a court could consider making a pension sharing order against a debtor who has failed to pay a cash sum, without framing the order as a fair compensatory share for the debtor. This, it is submitted, is variation, not enforcement.

Sailing further into unchartered waters, the Law Commission also recommend that enforcement powers against pension assets should extend to enforcement under Schedule 1 to the Children Act 1989. This is particularly striking, as unlike matrimonial proceedings, there is no statutory jurisdiction under Schedule 1 for the court to make orders against pensions.

The effect of the Law Commission's proposal would mean that a new and exclusive remedy would become available to a maintenance creditor on enforcement, which was not available at first instance. In defence of this recommendation, the report states at paragraph 9.41: 'a pension order may not, in most cases, produce funds during the child's minority and so will not directly benefit the child. However, as a result of non-compliance with a Schedule 1 order, the creditor may accrue debts or suffer financial hardship because he or she must still support the child financially even if the payments are not received. Funds from the debtor's pension should be available to ensure the creditor receives at least part of what he or she was owed.' It is trite principle that an order can only be made under Schedule 1 for the benefit of a child. If one concedes (as the Law Commission does), that enforcement against a pension asset is likely to be incapable of benefiting the child, then the basis of the original order has become unravelled. A new order has been made to achieve a completely different and distinct aim: compensation for a creditor. 

CONCLUSIONS

The Law Commission's recommendations are a step in the right direction. The consolidation of procedure on a general enforcement application, contained in a new section of the FPR with an accompanying practice direction will clarify and streamline enforcement proceedings for lawyers and litigants alike. The recommendations requiring enforcement to be pre-emptively considered at the conclusion of first instance proceedings are similarly sensible. The two new proposed coercive orders (passport confiscation and driving disqualification) are welcome additions to the enforcement toolbox, and the introduction of information requests and information orders (already widely used in criminal proceedings) are likely to be effective against recalcitrant debtors. 

Nonetheless, care must be taken to ensure that enforcement proceedings are not allowed to unwittingly transform into variation proceedings. Provision for mandatory financial disclosure on a general enforcement application, whilst helpful, must not be framed as a platform for re-consideration of the first instance judgment. The suggestion that the court should have the power to make new orders against a debtor's pension is a cause of concern. Pension orders are a distinct species of remedy, and pursue specific aims in financial proceedings: either the sharing of assets, or the meeting of a recipient's needs on retirement. A pension order not made in pursuance of these aims, but rather made simply to compensate a creditor for a debt they cannot recover otherwise, will serve as an effective variation of a first instance order. The suggestion of pension orders on an enforcement of Schedule 1 orders is more ambitious still. The majority of the Law Commission's proposals represent a brave step in the right direction, and have the potential to save costs, confusion and judicial time. However, the government should be cautious to ensure that the pursuit of compensating a maintenance creditor does not lead to the court inadvertently trampling the principles underpinning first instance financial orders. 

19/1/17