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Finance and Divorce Update, April 2018

Claire Molyneux Senior Associate, and Naomi Shelton, Associate, Mills & Reeve LLP analyse the news and case law relating to financial remedies and divorce during March 2018











Claire Molyneux, Senior Associate and Naomi Shelton, Associate, Mills & Reeve LLP

As usual, this month's updated is divided into two parts:

A. News in brief

President laments inaction on justice reform

Speaking at the University of Edinburgh's Law School, Sir James Munby criticised the failure to progress family law reform.  He highlighted cohabitants' rights, no-fault divorce, financial relief after divorce, access to and reporting of family cases and the cross-examination in person by alleged perpetrators of domestic violence of their alleged victims to be the areas in need of most urgent reform.  To read the speech in full, click here.


Law Society report highlights those financially struggling unable to get legal aid

The report has highlighted that the financial eligibility test for civil legal aid is disqualifying people from receiving legal advice and representation, even though applicants are already below the poverty line.  The current means test (brought in in 2010) results in those eligible having to make a contribution to their legal costs even if they are unable to afford clothing, household goods and personal care items.  The Law Society has called for a re-instatement of the means test to its 2010-real terms level. To read the full report, click here.


Practice Guidance on Standard Family Orders

The second batch of Standard Family Orders have been circulated in conjunction with a short consultation.  The consultation ends on 16 April 2018.  For further details click here.


Government launches Post-Implementation Review of LASPO

Given the extensive nature of the changes made by LASPO, the government has announced that it is undertaking a post-implementation review.  The aim will be to assess the impact of the policies introduced by and since LASPO and to consider more widely the future of legal support. 


Domestic abuse news

Parliamentarians are giving a lot of time to consideration of the issue of domestic abuse. There is the upcoming promised draft Bill on domestic violence and abuse, the Government's parallel consultation and the Home Affairs Committee has also confirmed that it is seeking evidence on what measures and reforms are needed to tackle domestic abuse as "one of the most damaging and prevalent crimes".  The consultation (which closes on 31 May 2018) looks at how new laws and stronger powers could better protect and support.  One suggestion is a new Domestic Abuse Protection Order which would impose a range of conditions on the abuser, breach of which would be a criminal offence. 


Civil partnership reforms and rules on the registration of partnerships, marriages and deaths

A briefing paper outlining the aims of the Civil Partnerships, Marriages and Deaths (Registration Etc) Bill, introduced by Tim Loughton MP, was published on 1 February 2018. For the briefing paper click here.

The Bill originally provided for an extension of the Civil Partnership Act 2004, to include heterosexual couples, but in order to get the Bill through Parliament it has been amended to require the government to undertake a review. One of the ways of equalising the law for everyone being considered by the government is to abolish civil partnerships for everyone. However, the Supreme Court is to shortly hear the case of Steinfeld & Keidan v Secretary of State for Education [2017] concerning the lawfulness of the government's refusal to permit heterosexual couples to enter into a civil partnership, which may result in the provision being reinstated into the Bill.

The Bill was read for a second time on 2 February 2018. The Steinfeld appeal is being heard on 15 and 16 May 2018.


Independent review of sharia law recommends civil marriage alongside Islamic ceremony

On 1 February 2018, the Home Office published the findings of an independent review into the application of sharia law in England and Wales.

The review focuses on whether sharia law is being misused or applied by sharia councils in a way that is incompatible with domestic law. In particular, the review considers whether sharia councils are discriminating against women who seek assistance with marriage issues and divorce. The review reveals that it is mostly women using sharia councils, and in over 90% of cases, these women are seeking an Islamic divorce.

The review reports that a significant proportion of Muslim couples fail to civilly register their religious marriage, leaving them no option of obtaining a civil divorce. The report's key recommendation is to amend the Marriage Act 1949 and the Matrimonial Causes Act 1973 to require Muslim couples to undergo a civil marriage ceremony before or alongside the Islamic marriage ceremony, in order to afford Muslim women the full protection of family law.

The paper calls for awareness campaigns and education programmes informing Muslim women of their legal rights and suggests that the state creates a body to design a system of self-regulation of sharia councils, including a code of practice.


Change to Cafcass' email addresses

Cafcass have announced that from 13 March 2018, Cafcass will no longer be using "gsi" in its email addresses. "gsi" will be replaced by "@cafcass.gov.uk" in all addresses. Emails sent to "gsi" addresses after 13 March may not be received.  For the details click here.


HMCTS court forms to move to GOV.UK

HMCTS form finder moved over to the GOV.UK website from 21 March 2018. Forms and guidance documents will not change and form finder search will continue to be available during, and after the move.


Updated EX50 Court Fees form

The EX50 Civil and Family Court Fees form was modified as of February 2018 and republished in March 2018.

The main change is that the £50 fee for decree absolute applications where the petition was filed prior to July 2013 has been removed.


Pilot scheme for filling in a section 8 Children Act 1989 application online

On 26 March 2018, Practice Direction 36G established a pilot scheme to allow for applications for an order under s.8 Children Act 1989 to be filled in online. The pilot scheme began on 26 March 2018 and closes on 29 January 2019.

Once the application has been generated it needs to be saved or printed for filing at court. Future pilot schemes will establish whether the online system can be used for later stages of s.8 applications such as making an application online.


B. Cases

Buehrlen v Buehrlen [2017] EWHC 3643 (Fam) (Mr Justice Moor) 24 November 2017


The case concerned a couple who had divorced but the financial aspects were still to be agreed.  The husband ("H") wanted to call expert evidence as to the wife's ("W") earning capacity.  W alleged that she couldn't find employment or that suitable employment (she was a model maker and jewellery designer) was rare. 

The use of a joint expert was initially agreed to by W but was then disallowed by the district judge who was not satisfied that an employment consultant was necessary.  At a hearing before a circuit judge, W withdrew her consent and so H applied to instruct an employment expert on a sole basis.  Whilst finding that the report would be helpful, the circuit judge also did not consider it necessary and refused the application.  H appealed.

H's appeal was dismissed.  Mr Justice Moor quickly dealt with H's argument that the interpretation of necessity should be distinguished and differentiated between children and finance cases (as the leading cases - Re TG (A Child) [2013] EWCA (Civ) 5 and Re HL [2013] EWCA (Civ) 655  are both children cases).  Moor J confirmed that the cases were not confined to matters where there was a question as to the validity of the expert, and held that the authorities were squarely addressed at the definition of "necessity". Notwithstanding that the "necessity" requirement comes from different sources in children and finance cases, the word and its definition applies equally to both. 

Referring to Re HL where Munby P says:

"There is evidence that is "indispensable on the one hand and (evidence that is) useful, reasonable and desirable on the other."  The President was clear that "indispensable" would fall into the necessary category.  "Useful, reasonable and desirable" would not."

Moor J stated that "necessary" in this context lies somewhere between those two options: "Having the connotation, the imperative, what is demanded rather than what is merely optional or reasonable or desirable".

Concluding that the circuit judge had been "absolutely right" in refusing H's application, Moor J pointed out that it was entirely possible to present evidence at a final hearing as to what W could earn from publicly available documents and job adverts, and to cross examine her on that basis. 

Indeed, Moor J went on to make a general comment that, although there are cases where such evidence would be of use, "in the vast majority of cases" it would not be helpful or useful to have such evidence and that judges were well able to assess earning capacity via cross examination and without additional expert input.


RS v LS and Levison Meltzer Pigott  [2018] EWHC 449 (Fam) (Mrs Justice Roberts) 7 March 2018

Here, we see Roberts J setting aside the default judgment regarding a judgment debt owed to the wife's ("W") solicitors in financial remedy proceedings.

In protracted financial remedy proceedings, the Family Court had made a substantial costs award against the husband ("H") for non-disclosure.

Levison Meltzer Pigott ("LMP") had represented the W for a significant period during the proceedings. The financial remedy order included an indemnity from H to pay £69,000 (without interest) towards LMP's costs from his share of the sale proceeds of a Moscow property. However, the sale was delayed and the indemnity remained uncrystallised. LMP obtained a default judgment debt against W for £107,000, which included the £69,000 and interest due on unpaid costs under their retainer dated May 2013.

W sought to set aside the judgment debt, in part based on the merits of her proposed defence, arguing the retainer was varied in March 2014, after she dis-instructed LMP. W contended that she agreed to reinstruct LMP on a fixed fee basis, and their discussions included waiving the interest due under the original retainer. LMP denied this. Although the revised retainer was silent as to interest, LMP argued their entitlement under the original retainer remained unchanged. W's representations had not yet been formally pleaded and LMP had not yet formally responded.

Roberts J varied the judgment debt from £107,000 to £69,000, to allow W to defend LMP's claim for interest. She found W had no arguable defence against paying the £69,000. W was entitled to look to H for his indemnity, but the financial remedy order did not displace her contractual liability to pay LMP for its services.

The case highlights the importance of considering interest on unpaid costs when negotiating and drafting a revised retainer.


Mensah v Mensah [2018] EWHC 484 (Fam) (Mrs Justice Theis) 9 March 2018

This case involved a couple with French nationality where the family lived in London and Paris.  In 2011, the wife ("W") issued a divorce petition in England, but did not progress the proceedings. In 2012, she issued divorce proceedings in France, although afterwards contested the French court's jurisdiction. The French court concluded that it had jurisdiction and both parties attended a non-conciliation hearing in April 2013. A hearing took place in 2014, leading to a divorce judgment, with effect from the date of the non-conciliation hearing.

In September 2014, W applied for decree nisi in the English proceedings, but could not proceed because no acknowledgment of service had been filed. In 2015, the husband ("H") purportedly filed an acknowledgment of service and corresponded with the court, acknowledging the English court's jurisdiction to deal with the finances, and noting that a divorce application had been accepted in France. H later denied ever signing the acknowledgement of service. W applied for decree nisi and her statement in support referred to the French proceedings. Decree absolute was pronounced in 2016.

H subsequently succeeded in his application for recognition of the French divorce (Article 21, BIIR). The English decree nisi and decree absolute were set aside.

The decision emphasises that although W failed to provide the English court with all the relevant information about the French proceedings, there were documents on file that should have alerted the court to their existence. When the court considers whether to grant a decree nisi (FPR r. 7.20) it must inquire into the facts alleged by the petitioner (section 1(3) MCA 1973). If documents on the court file raise the issue of proceedings about the marriage in another jurisdiction, the court must consider directing a hearing to determine whether the proceedings in this jurisdiction should be stayed (r.7.27).


SR v HR and SC (trustee in bankruptcy of SR) [2018] EWHC 606 (Fam) (Mr Justice Mostyn) 23 March 2018

In May 2012, property adjustment orders had been made against three properties.  A subsequent order the following year rearranged certain aspects of the orders but did not alter the underlying proprietary or economic effect.  The orders were not implemented and enforcement action ensued.  When the wife ("W") appealed the enforcement action, the proceedings led to the judge setting aside the orders from 2012 and 2013 and replacing them with a new order ("the October order") which did significantly change the overall economic effect – W was better off by about £46,000.  However, between the hearing and the October order being made, the husband ("H") was made bankrupt. 

H appealed the October order and was supported by his trustee in bankruptcy. 

It was found that, in short, the judge had had no jurisdiction to make the October order and therefore it had to be set aside.  The judge had relied upon Thwaite v Thwaite [1982] Fam 1 in support of his actions but Mostyn J was unconvinced.  There was scant support, he said, for the line of cases that Thwaite referred to making a loophole through which a non-variable final capital order could be varied.  There was no support to the notion that if the court, exercising its equitable jurisdiction, refuses to enforce an order it then gains the power to make a completely new one.  Further, mere delay in implementing a "routine property adjustment order" could not amount to a ground for set aside under FPR r.9.9A.

But of course there was one additional reason why the order had to be set aside – H's bankruptcy.  At the time the October order was made, H had been declared bankrupt.  All of H's property had already vested in the trustee; so, at the time of making the order, H did not in fact have £46,000 to give to W. 

The 2012 and 2013 orders were revived. 

The effect of the orders being revived were that W received £121,361 and H received £49,427.  £11,778 was held to satisfy a charging order in favour of MBNA and there was also £3,300 owed to the CSA.  H had other debts totalling over £53,000. 

H made a successful claim for disbursements as a litigant in person.  These totalled £866.  In addition, the trustee in bankruptcy (who was given permission to intervene) had incurred costs of £10,000 (including VAT).  The fact that the trustee had written to W weeks before the hearing setting out why the October order should be voided was very relevant.  As a result, Mostyn J ordered W to pay the trustee's costs of £10,000. 


Hart v Hart and Brondesbury Limited and Susan Byrne and Halesowen Estates Limited [2018] EWHC 548 (Fam) (HHJ Wildblood QC) 23 February 2018 and [2018] EWHC 549 (Fam) (HHJ Wildblood QC) 15 March 2018

Following three and a half years of litigation, a final order had been made in 2015 (by the same judge).  The order required the husband ("H") to transfer ownership of a company (Drakestown Properties Limited) to the wife ("W").  H had also undertaken to take all the steps necessary to ensure that W could "conduct the efficient and effective management of the company".  However, W had had to take legal action to secure the vacant possession of the premises and H had failed to leave her all the documents necessary to run the company including completing tax and VAT returns.  As a result, she had been threatened with enforcement action by HMRC and had been unable to defend a claim for arrears of rates accrued prior to her taking over the company. 

Due to H's failure to comply with the undertaking and various other enforcement orders made (numerous hearings took place between September 2016 and February 2018), W applied for H to be committed to prison.  HHJ Wildblood QC noted in his judgment that H had simply not engaged in the committal proceedings and had done his "utmost to prejudice" W.   

It was held that W had "proven with ease" that H was in contemptuous disregard of his undertaking and the subsequent orders made.  The judge found that the contempt was persistent, H having given untruthful evidence to hide his contempt and that he showed no remorse for his behaviour.  The judge considered that H's motivation was his resentment towards the final order made in W's favour and that he had intended to put W to great cost to enforce her award. 

Having warned H that he faced a substantial punishment, HHJ Wildblood QC in his second judgment considers that only imprisonment would fairly reflect the seriousness of the breaches.  In total, H was sentenced to 14 months' imprisonment, with H having to serve half of that. 

In reaching a sentencing decision, HHJ Wildblood QC considered the aggravating factors against those that were mitigating.  This was in accordance with the guidance given in Crystal Mews Ltd v Metterick and Others [2005] EWHC 3087 (Ch).  The mitigating factors included the husband's age of 83, an accepted requirement for monitoring of prostate cancer, the fact that he had made good some of the deficiencies, and had agreed to pay a substantial contribution towards W's costs.


French v Secretary of State for Work and Pensions and Beckam [2018] EWCA Civ 470 (Lord Justice Hickinbottom and Lord Justice Coulson) 13 March 2018

The Court of Appeal agreed with the father ("F") that his income from gambling was not "earnings from gainful employment such that it would be part of the child support assessment". 

F was a professional card gambler, whose sole source of income for the best part of 25 years had been from gambling.  He earned on average £19,000 to £23,000 a year plus an extra £1,000-£3,000 a year from bets placed on horses, boxing and football.  On the basis of his winnings, the CSA had assessed his liability to be £95-£110 a week. 

F appealed the decision.  Both the First and Upper Tier Tribunals found against him, relying on the case of Hakki [2014] ECWA Civ 530.

F's appeal was allowed and the decision of the Upper Tribunal was set aside. 

F's gambling did not have sufficient organisation to amount to a trade, business, profession or vocation; neither were his earnings taxable profits from self-employment nor was he found to be a "self-employed earner".  Therefore, he had no income attributable to self-employment for the purposes of the child maintenance assessment.  The assessment was remitted back to the Secretary of State to remake the decision. 

Importantly, F's case was distinguished from situations where gambling earnings could constitute part or all of an individual's income.  The Court of Appeal gave the example of a poker player who regularly appeared on TV advising people how to play poker and received a fee for doing so.  If, in the course of that business, the poker player also made winnings from playing as part of his appearance, those winnings might also be considered part of his business.


Bloom v Bloom (Irina Kontipaylova intervening) [2017] EWHC B108 (Fam) (Mr Recorder Cusworth QC) 2 May 2017

This was a preliminary hearing determining whether or not there was a constructive trust by which the husband ("H") held a French property for the couple's daughter.  A constructive trust was found, with the court finding that the funds which had been advanced to him by his parents-in-law (who had been given permission to intervene) to purchase the property had been advanced clearly on that basis


Bloom v Bloom (Irina Kontipaylova intervening) [2017] EWHC B109 (Fam) (Mr Recorder Cusworth QC) 4 December 2017

The wife ("W") was Russian, aged 28.  The husband ("H") was English, aged 43.  Including pre-marriage cohabitation, the relationship had lasted six years.  They had a four year old daughter and W was her primary carer.  W did not work. She had given up her degree course, unfinished, upon the relationship with H starting

Shortly after the marriage, the couple's matrimonial home in London was acquired, for £1,325,000. The purchase was funded entirely by W's parents ("WP") (who had been given permission to intervene).  WP sent just over $2million to H between January and May 2011 to fund the purchase.

There was also a French property purchased in 2013 in H's sole name for €2,500,000.  However, the purchase was entirely funded by WP.  The purchase was secured by a 100% mortgage from Societe General, backed by a deposit of €1,150,000 from WP.  WP had made payments to H at the rate of €30,000 a quarter, which were intended to be applied against the mortgage liability, until June 2015.  The total amount paid by WP towards that property and its mortgage was €1,963,742.

At a preliminary hearing (see above), H asserted that the French property was an outright gift to him and W.  WP argued that the property was not a gift to the parties, but rather, it was to be held on constructive trust for the parties' daughter ("A"). As described above, the judge accepted WP's case as to the events which led up to the purchase of the property in July 2013 and found that there was a constructive trust by which H held the property for A. 

Further, the judge stated that it was "clear (and I think not disputed) that significant further funds that were advanced to him for the purpose of making mortgage payments on the property were not in fact so used, but rather appear to have been spent during the marriage".

H argued that W had been effectively complicit in the use of all of the money that had been received from her parents, but diverted to meet other costs during the course of their marriage. He claimed that the original mortgage was necessary as the sums provided by W's mother were insufficient to complete the original purchase. Later he maintained that he and W had spent some of the funds from her mother, before the purchase, hence the need for a mortgage. The judge was satisfied that W had no knowledge of, nor was complicit in any way in the fraudulent obtaining from her parents of funds, under the pretext that they were the sums required to pay the French property mortgage, or for any other reason.

Finally, it became clear during the course of the proceedings that there had been a significant amount of falsification of W's signatures and/or the contents of documents pertaining to her on mortgage documentation.

W's open position was:

• The remaining interest in the family home be transferred from H to W
• Payments from H to W to meet the following liabilities:

o £78,500 – SDLT due from a failed avoidance scheme
o £20,000 – mortgage arrears
o £250,000 – to reduce the mortgage
o £96,000 – arrears of backdated PPs
o £250,000 – payable in five instalments over five years

• Child maintenance
• H to pay W's costs (min. £46,628)
H's initial open position was:
• W to pay H £500,00 to discharge the mortgage on the family home if she wished to keep the property
• W to pay H £1million as a housing fund
• W to pay H "compensation" in respect of a lost business opportunity with WP (unquantified)
• W to pay H a lump sum equal to 50% of the value of her jewellery
• W to transfer one of her two Russian properties to him within 28 days
• Dismissal of W's income claims
• W to pay H PPs of £7,000 a month
• WP to pay H E300,000 representing funds H spent on the French property
• W to meet her own costs

In short, the court was dealing with a relatively short marriage where all the parties' capital resources had been derived from the extra-matrimonial contributions of W's parents and H's own income resources were unclear and he was making no financial contribution towards his daughter.  H was not forthcoming in his disclosure of his financial circumstances and the vast majority of the documentation before the court was thanks to W's legal team's detective skills. 

The assets of the parties totalled £1.421million although it was highly likely that H had other undisclosed assets.  

Mr Recorder Cusworth QC made the following order.

• H to pay W £116,000 representing arrears of maintenance and mortgage payments
• H to pay W £78,500 in respect of the overdue SDLT
• H to pay £250,000 in five instalments over five years
• H to pay child maintenance in line with the CSA framework
• H to transfer to W his interest in the family home. For H to be released from his mortgage covenants, he would have to demonstrate to the court that he was complying with the final order by making at least the initial payments ordered and one instalment of the £250,000 to be paid.  This would give W time to renegotiate the mortgage (the current mortgagee having been misled about the basis for the mortgage so could well demand its replacement)

Noting the relevant factors – the short marriage, overwhelming financial contribution from W and her parents, W's responsibility as primary carer, the judge was satisfied that H could meet his own needs going forward through a combination of his own resources and earning capacity.  The award, it was made clear, was not based on H's conduct but on W and the child's needs which were fully engaged. 


Bloom v Bloom (Irina Kontipaylova intervening) [2018] EWFC B10 (Mr Recorder Cusworth QC) 2 February 2018

Following the financial remedy proceedings, W made a further application to the court to seek permission to rely on the contents of the earlier judgments. W sought both judgments to be published un-anonymised and a direction from the court as to whether the contents of those judgments should be forwarded to the relevant public authorities.
 
The judge confirmed that as a general rule, documents and other evidence produced in financial remedy proceedings should not be disclosed to third parties outside the proceedings save for exceptional circumstances. The fact that evidence may be relevant or useful would not be sufficient for these purposes. As explained (obiter) by Charles J in A v A; B v B [2000] 1 FLR 701:

"… the court does not regularly send papers to the prosecuting authorities when a litigant admits that he has lied or is found to have lied to the court. … It seems to me that, with a view to promoting the public interest in a civil court having all relevant material before it, a general practice can be adopted pursuant to which the court does not report the matter to the prosecuting authorities, particularly if the person involved makes full and frank disclosure and apology. There will naturally be exceptions having regard to the nature and circumstances of the case."

The judge stated that the general practice of the Family Division is for judgments in financial relief cases not to be published, or if published to be anonymised. That is done out of respect for the private life of the litigants and in order to promote full and frank disclosure, and because the information in question has been provided under compulsion. However, different considerations apply where the information and documents provided by a litigant are false. There is no inherent confidence in dishonesty, but that does not mean that there is no discretion in the court even if dishonesty is found.

The concern that publication without anonymisation could lead to future litigants being deterred from disclosing for fear of wider public exposure, and that that in turn might undermine the giving of full and frank disclosure generally, has now been rejected by a number of judges, including Charles J in A v A; B v B and Mostyn J in W v W (Financial Provision: Form E) [2003] EWHC 2254 (Fam), [2004] 1 FLR 494. In that case, Mostyn J expressly endorsed the former's view:

"While it is likely that there will always be litigants in the Division who fail to comply with the obligation of full and frank disclosure I believe that the prospect of public condemnation in the event that the default is exposed will act as a deterrent and so reduce the incidence of such misconduct."

The same judge went further in Veluppillai v Veluppillai [2015] EWHC 3095 (Fam), [2016] 2 FLR 681 and also made a wider public policy point at the same time when he said:

"In my decisions of L v L (Ancillary Relief Proceedings: Anonymity) [2015] EWHC 2621 (Fam), [2016] 1 WLR 1259 and Appleton and Gallagher v News Group Newspapers Ltd and PA [2015] EWHC  2689 (Fam), [2016] 2 FLR 1, I explained that the right to privacy in the hearing of an ancillary relief application would be forfeited on proof of iniquity. There is no doubt the husband's misconduct has been at the extreme end of the spectrum. It is in the public interest for his conduct to be exposed. The public should be aware of the scale of problems that courts administering justice and implementing the rule of law have to face at the hands of unrepresented and malevolent litigants determined to do everything they can to destroy the process."

The judge stated that in allowing W's application, it would show to others that a party to divorce proceedings cannot easily hide the truth. This is because, when pursued as diligently as they had been during these proceedings, the investigations that the other party can undertake (with the court's inquisitorial assistance at the hearing, and with the tools provided by the Family Procedure Rules), mean that failure to provide full and frank disclosure will not produce a good result for the responsible party.

The judge accepted that, through no fault of her own, W had been linked to the respondent's conduct and that she should be entitled to defend herself from implication in the same. Through an un-anonymised publication of the judgment, she would not suffer unfair liability from her ill-advised connection with H and his conduct.

April 2018