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Ancillary Relief Update (Autumn 2006)

Joanna Goodall, barrister with Addleshaw Goddard, reviews the latest ancillary relief decisions

Joanna Goodall, barrister at Addleshaw Goddard, reviews recent decisions in ancillary relief proceedings

The Autumn Ancillary Relief Update focuses on interpretation by the courts of the House of Lords' decision in Miller & McFarlane [2006] 1 FLR 1186 before moving on to consider recent decisions concerning provision for legal fees in maintenance pending suit applications and the effect of subsequent cohabitation on periodical payments orders.

Charman v Charman [2006] EWHC 1879 (Fam) has attracted much interest from the media. Childhood sweethearts who met at school in 1969/70, the parties were both 53 at the time of the hearing, having married in 1976 when the husband was 23 and the wife 22. Other than their respective earning capacities, neither brought assets of any note to the marriage. By the time of separation in November 2003, some 30 years after the parties became engaged and 27 years after marriage, the husband had generated wealth, excluding that held in trust for the children (who were aged 24 and 19 by time of the hearing), of £131,323,000. Of this, £6m was held in the wife's name, £56m in the husband's name and £68m in the Dragon Holdings Trust, which was created in 1987.

The husband argued that the Dragon Holdings Trust was a dynastic trust created for the benefit of future generations and as such it should be excluded from the available pot. Mr Justice Coleridge rejected this both on the facts and as a matter of principle. The judge found that, even if the wife had agreed to the creation of a dynastic trust during the marriage, it would be unfair to her for it to be excluded from the assets to be divided between the parties in light of the size of the fund in the context of the assets available for distribution.

It was held that the wealth created during this marriage was of such "extraordinary proportions" created from "extraordinary talent and energy" that a departure from equality was justified. Where an exceptional contribution in generating wealth requires such a departure to be made, the adjustment should be "meaningful and significant and not a token one " (at 124). Accordingly, the wife received £48,000,000, representing just under 37% of the available assets including a discount for the receipt of copper-bottomed assets.

Coleridge J dealt with all of the interlocutory hearings save the FDR. These included the wife's application for maintenance pending suit at which the husband was given the option of making payments to the wife at the rate of £360,000 p.a. or £5,000,000 on account of any lump sum. In his judgement, the judge considered that this optional approach is the best way of dealing with such applications in big money cases.

Charman also provides practical suggestions for dealing with cases involving large amounts of documents and papers through the innovation of the "Elevation Bundle". The main court bundle comprised some 14 lever arch files. A further 13 files, containing documents which had been created during the interlocutory process, were not included in the main bundle, but were at court in files separated by lettered dividers. Each time a document in this latter set of files was referred to during the course of the hearing, it was "elevated" to the Elevation Bundle. Each document was then placed in the Elevation file in the lettered divider corresponding with the file from which the document had emanated.

Finally, Coleridge J considered how uncertainty of outcome could be reduced in cases involving wealth generated by extraordinary skill given the wide judicial discretion which must be exercised in cases of this sort. The judge looked at the systems adopted in criminal and common law, where the use of tariffs in considering sentencing and general damages is commonly used, and considered that the introduction of tariffs in big money cases involving wealth generated by extraordinary skill, used as guidance only and which would not override the s25 exercise, could assist. A tariff of percentage bands would decrease as the overall wealth increased, thereby providing guidance for the court as to the sort of reduced share the non-wealth creating spouse might expect to receive when considering the section 25 factors.

R v R [2006] EWHC 1482 (Fam)
This decision of Nicholas Mostyn QC sitting as a deputy High Court Judge provides guidance to practitioners seeking to distinguish non-matrimonial property from that which is available for division. The husband brought ancillary relief proceedings 10 years after the wife had divorced him, the delay being explained by his arrest and detention in India for 7 years. The wife and her son ran a business importing and selling artefacts. The husband claimed that this had been a joint venture throughout the marriage. In considering what is and is not non-matrimonial property it was held:

  1. The longer the marriage the more likely it is that non-matrimonial property would be merged or entangled with matrimonial property.
  2. An asset acquired or created by one party after separation might qualify as a non-matrimonial asset if it could be shown that it came into being by virtue of his personal industry and not by the use of an asset created during the marriage in respect of which the other party could assert a share.
  3. A post-separation bonus is probably a matrimonial asset unless it relates to a period that commenced at least 1 year after separation.
  4. In deciding whether a non-matrimonial post-separation accrual should be shared, and if so in what percentage, the court should consider amongst other things:

(a) Whether the party claiming a share of the benefit proceeded diligently with the claim;
(b) Whether the party with the benefit had treated the other fairly since separation;
(c) Whether the money-making party had the prospect of making further gains or earnings and, if so, whether the other party would be sharing in that, in what percentage, for how long and by what means.

S v S [2006] All ER (D) 118 (Oct)
The parties met when they were 18 or 19. Including 1 years cohabitation, the marriage lasted 18½ years to separation in 1996, when the husband left the matrimonial home. There were no children. Hopeful of a reconciliation, and perhaps as a result of the relatively amicable nature of the separation, the decree absolute was not pronounced until September 2003 and Form A issued in November 2003. During the 10 years since separation, the husband developed a business without, it was acknowledged, any contribution, financial or otherwise, from the wife.

Three years after separation, a management buyout of the company took place at a cost of £16m in 1999. £12m of this was borrowed from banks and £4m raised by the issue of preference shares to lending institutions. None of the financing involved the husband jeopardising the others assets by way of charges or personal guarantees.

The assets exclusive of pensions and the husband's shares in the company totalled £2m. There was a dispute between the experts instructed by each party as to the value of the husband's shareholding. The court held that for the shares to have a tangible value the husband's business would need either to be floated or sold, and in order for that to occur the husband would have to have made an ongoing contribution and worked hard for more than 10 years post-separation. The business had no historical base pre-separation.

Singer J held that the wife should not receive a percentage share in the value of the husband's company. She was receiving the bulk of the current tangible wealth that had no appreciable risk.

C v C (Maintenance pending Suit: Legal Costs) [2006] FLR (forthcoming) and Currey v Currey [2006] All ER (D) 218 (Oct)
C v C and Currey v Currey provide further assistance to those seeking a legal costs component in an application for maintenance pending suit and follow in the chain of recent case law stemming from the seminal decision of A v A (Maintenance Pending Suit: provision for Legal Fees) [2001] 1 FLR 377. By way of recap, Thorpe and Dyson LJJ in Moses-Taiga v Taiga [2006] 1 FLR 1074, held that in exceptional cases where the applicant has no assets, no security for borrowings, no income that would enable her to enter into a Sears Tooth arrangement and there is no alternative source of funding the litigation, s22 of the MCA 1973 can be extended to provide for a legal costs component (at para 25). Nicholas Mostyn QC sitting as a deputy High Court Judge considered Moses-Taiga v Taiga in TL v ML [2006] 1 FLR 1263, and emphasised that for a case to be "exceptional" so as to permit a legal costs component, it was sufficient for an applicant to show that she had no assets, could not raise a litigation loan and could not enter into a Sears Tooth arrangement.

C v C expands the sorts of cases which can be considered "exceptional" so as to permit a legal costs component in an award for maintenance pending suit. In C v C the wife had no earning capacity. The husband had a 72.6% shareholding in a company valued at £13 million. The sole resource available to the wife upon which to raise funds to meet her legal expenses was her half share in the matrimonial home in which she lived with the 2 children of the marriage, which was valued at £500,000. Hedley J held that Moses-Taiga v Taiga provided an example of an "exceptional" case but that this was "illustrative and not determinative". The circumstances of the instant case were exceptional, particularly given the need for an investigation into the scale and liquidity of the assets in the husband's control, and allowed a legal costs component of £10,000 a month for 10 months. In so ordering, the judge was concerned that the alternative for the wife would be to mortgage her interest in the matrimonial home, thereby risking her and the children's home.

The Court of Appeal in Currey v Currey [2006] EWCA Civ 1338 considered that the use of the word "exceptional" in considering whether to permit a legal costs component in applications for maintenance pending suit was "obstructing the proper exercise of the jurisdiction". Thorpe LJ's criteria in Moses-Taiga v Taiga of that which an applicant would need to demonstrate should not be taken literally. The court focused instead on the concept of reasonableness. At paragraph 20 Wilson LJ held:

"the initial, overarching enquiry is into whether the applicant for a costs allowance can demonstrate that she cannot reasonably procure legal advice and representation by other means. Thus, to the extent that she has assets, the applicant has to demonstrate that they cannot reasonably be deployed, whether directly or as the means of raising a loan, in funding legal services……..she has also to demonstrate that she cannot reasonably procure legal services by the offer of a charge upon ultimate capital recovery. I would add, fourthly, that the court needs also to be satisfied that there is no such public funding available to the applicant as would furnish her with legal advice and representation at a level of expertise apt to the proceedings".

The court also held that, in deciding whether to make a costs allowance, the court should proceed with a "judicious mixture of realism and caution as to both its amount and duration". Ordering the allowance to last until the FDR did not put improper pressure on the recipient to settle. Rather, it was a reasonable inducement to negotiate positively. Should the FDR fail, the costs allowance could be looked at thereafter.

K v K (Periodical Payment: Cohabitation) [2006] 2 FLR 468, FD
In K v K Coleridge J considered the effect of settled cohabitation on ongoing periodical payments. The original order made by consent in 1998 provided for the wife to receive 51% of the capital and periodical payments of £16,000 p.a. index-linked such that £18,955 p.a. was payable at the date of the hearing. The common provision for periodical payments to cease on the wife's cohabitation for a period of 6 months or further order had not been included. Of course, being a pre-December 2000 decision, pension sharing was not possible. The husband gave an undertaking to purchase a reversionary annuity for the wife payable at the date of his death in an amount to provide her with £15,000 p.a., representing £239,000 of the pension fund. The husband sought to vary the terms of the order so as to reduce the wife's periodical payments to a nominal order with immediate effect.

By the time of the variation application, the husband was 58, retired and remarried. The wife was 53 and had been cohabiting with a university lecturer for 3 years. The husband's application for a variation of the periodical payments order to a nominal sum was made on the basis of the imminent 47% drop in his income due to retirement together with the wife's cohabitation. The wife accepted that a slight downward variation to £15,000 p.a. was appropriate, but argued that her cohabitation was irrelevant. Each party owned a property in which they lived with their current partner. The wife also owned a second property jointly with her cohabitee which was a holiday let. Her partner owned two other holiday cottages in the same village. There had been "considerable intermingling" of their financial arrangements.

At the time of the hearing the husband's net assets were £1.315m and the wife's £319,000. Whilst the husband's net income after the reduction would be greater than the wife's, the net income of the two households including that of the husband's second wife and the wife's cohabitant, were broadly equal at around £50,000 each.

The wife's periodical payments were reduced to £12,000 p.a. and capitalised in the sum of £100,000. Coleridge J held:

  1. The effect of cohabitation is "a troubling and messy area of the law" and the current legislation "is not adequate to deal with it".
  2. "considerable weight" could be placed by the court on lengthy and settled cohabitation with the likelihood of continuing indefinitely as one of the circumstances of the case.
  3. The wife and her new partner should strive towards independence from the husband even if that requires a measure of financial commitment to the other.
  4. There is no reason why the court should not order a termination of periodical payments after cohabitation of a certain period, nor does s28(b) of the MCA 1973 prohibit it.
  5. The wife's award should be reduced to reflect all of the circumstances including the imminent 47% reduction in the husband's income and the provision he needed to make for his second wife. Where a reduction was ordered, the wife must be entitled to a tapering off of the payments to enable her to acclimatise without undue hardship.
  6. Cohabitation must impact on the level of capitalisation required by way of a reduction of the period of the wife's dependency. Had the available assets not been sufficient to enable capitalisation to occur, the court would have looked very carefully at the length of the term of periodical payments. In the instant case a 20% reduction to account for the fact and financial impact of the wife's cohabitation was allowed. Had the wife not had an underlying entitlement to part of the husband's pension provision, the reduction would have been greater.
  7. In order to achieve fairness in these sorts of cases the court must be in possession of the whole financial picture of both households and as a result there is no justification for "shyness in the production of financial information where parties cohabit".

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