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Ancillary Relief Update (Summer 2007)

Joanna Goodall reviews the latest ancillary relief decisions including key developments concerning bankruptcy and the matrimonial home

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Joanna Goodall, Barrister, Addleshaw Goddard

The summer update does not deal with the decisions of the Court of Appeal in either Charman v Charman [2007] EWCA Civ 503 or the House of Lords in Stack v Dowden [2007] UKHL 17, both of which have been considered by David Hodson in Charman:Sharing in the Face of the Dragon and Luke Barnes in Stack v Dowden: The Principles in Practice. Instead, the update will consider cases dealing with the advice to be given in respect of public funding at the outset of a case, variation of maintenance, the impact of subsequent bankruptcy on orders made in family proceedings and the approach of the court to marriages which are neither short nor long.

Truex v Kitchin [2007] EWCA Civ 618
Those practitioners who no longer have a public funding franchise need to be aware of the implications of this judgment of the Court of Appeal. The appellant firm, who had carried out work worth some £21,000, primarily in relation to an injunction, was able to recover only a small figure relating to the costs of an initial interview, since the court held that the client had not been advised about the availability of public funding at the earliest opportunity.

The court considered the relevant section of the Guide to Professional Conduct of Solicitors, 8th Ed, 1999, which provided as follows:

5.01 A solicitor is under a duty to consider and advise the client on the availability of legal aid where the client might be entitled to assistance under the Legal Aid Act 1988.

and rejected the appellant's proposition that a solicitor was entitled to a period of grace during which costs would be incurred on a private basis whilst instructions were taken and information in relation to the proceedings contemplated, gathered and, only once the gathering of information prompted a consideration that the client might be eligible for legal aid, were they then obliged to act on this issue.

This decision emphasises the fact that "a solicitor must be bound that the outset to consider the question whether a client might be eligible for legal aid" (at para. 22). Practitioners should be aware that the Guide has been superseded by the Solicitor's Code of Conduct 2007, which came into force on 1 July 2007, the relevant provision in respect of which can be found at http://www.sra.org.uk/code-of-conduct/195, and continues the obligation on practitioners to consider public funding.

Lauder v Lauder [2007] EWHC 1227 (Fam)
This decision of Baron J on appeal from the county court concerns the wife's application for a variation of an order for periodical payments made in 1988. The parties had been married for 24 years and had three children who were aged 20, 18 and 14 at the time of the divorce. The parties had enjoyed a "good middle class lifestyle", benefiting from both a large property in the South East and a holiday home in Ibiza. On divorce the wife, who was by then aged 50, was awarded periodical payments of £8,000 p.a. on a joint lives basis, equating to 35% of the husband's net income at the time, and 26% of the net assets (this being a pre- White v White [2000] 2 FLR 981 decision).

In fact, the terms of the order were not implemented for some years since the parties agreed that the wife should remain in the matrimonial home with the children, whilst the husband would meet the outgoings on the property and provide the wife with £50 per week. In addition to the post separation contribution to the family of 6-7 years in caring for the youngest child, the wife found work as a secretary, earning £23,500 p.a. by the time of her retirement at age 62, which was never enough, as Baron J found, to enable her to save significant sums so as to enable her to be financially secure and self sufficient in retirement.

In 2003 the matrimonial home was sold. The wife received £414,000 (the husband £314,000) from the proceeds of sale and applied for an upward variation and capitalisation of maintenance. At first instance the district judge found that the husband, who was by now 68, was worth not less than £4.5m and had a long term net income of £200,000 p.a., leaving him with a little over £150,000 p.a. net in excess of his needs. In contrast, the wife, who was 70, had assets of £487,900, the bulk of which was tied up in her home, and had net income of £6,600 p.a. exclusive of periodical payments. The wife put her needs at £43,600 p.a. The district judge awarded the wife periodical payments of £40,000 p.a. capitalised at £500,000. The wife appealed.

On appeal, Baron J noted the wife's attempts to become self sufficient in obtaining work as a secretary at age 50, and found that her earning capacity had been restricted as a result of a long marriage within which the parties had agreed that she would be a housewife and mother. By the time of her retirement at age 62, the wife was earning £23,500 p.a., insufficient, the judge held, to enable her to save so as to have a secure and comfortable retirement.

In allowing the appeal and awarding the wife capitalised periodical payments of £725,000, which would provide her with net spendable income in the region of £65,000 p.a. inclusive of net pension and benefits, the judge considered the guidance given by the House of Lords in Miller v Miller; McFarlane v McFarlane [2006] UKHL 24, [2006] 1 FLR 1186 (Miller) and considered that:

1 The wife's needs should be "generously interpreted";
2 The award should provide an element of compensation since this wife had been put at a severe disadvantage in the labour market;
3 As a pre-White case, the wife had received a relatively high proportion of the husband's income, perhaps as the concomitant to the low percentage of the capital, and that this was a relevant circumstance rather than wholly determinative;
4 In considering the variation, sharing was not appropriate since to do so would result in a second bite of the capital cherry.

A decision from the Court of Appeal on variation of [nominal] periodical payments after a lengthy delay has just been published - North v North [2007] EWCA Civ 760

Richard Hill and John Bangham v Wendy Haines [2007] EWHC 1012 (Ch)
The impact of bankruptcy on orders made in ancillary relief proceedings is an area with which practitioners will have to deal more often than has perhaps previously been the case given the increase in the number of bankruptcies and personal insolvencies. By way of example, in 2001, the total number of individual insolvencies was 29,774. In the first quarter of 2007 alone there were 30,075, of which 16,842 were bankruptcies and 13,233 individual voluntary arrangements, an increase of 23.9% and 47.6% respectively on the corresponding period a year ago. This decision on appeal to the High Court serves to remind practitioners that, when a former spouse is declared bankrupt, s.339 of the Insolvency Act 1986 permits assets transferred within divorce proceedings up to five years previously to be attacked by creditors, irrespective of whether or not they were transferred under a court order.

The wife petitioned for divorce in 2003. As part of the financial settlement the husband transferred his interest in the matrimonial home to her. In March 2005, the husband petitioned for bankruptcy with total liabilities of £132,000. His Honour Judge Pelling QC held that the transfer ordered in the family courts could be unravelled under the laws of insolvency, since it either took place at an undervalue or because no consideration had been given by the wife. The agreement (consent order) did not amount to an enforceable contract, since the family courts must approve any order and, since a claim for ancillary relief is not a cause of action, the wife could not have given consideration for the transfer of the property by compromising her claims for other relief because the settlement reached was by definition not binding until it had been reviewed by the family courts. As such, the creditors were able to look to the bankrupt's former wife and seek discharge of his debts from the assets (the family home and a Mercedes) that had been transferred to her.

Vivienne Joan Avis v (1) Charles Hamilton Turner (Trustee in Bankruptcy of the property of Edmund Charles Avis) (2) Edmund Charles Avis [2007] EWCA Civ 748
The recent decision of the Court of Appeal further affirmed the approach adopted in Hill and Bangham v Haines [2007] EWH 1012 (Ch). The wife had occupied the former matrimonial home since 1985 when in the course of family proceedings it had been ordered, by consent, that the trusts on which the property was previously held be varied. The order provided that, on the sale of the property, the proceeds be held as two thirds for the wife and one third for the former husband, with the sale postponed until the occurrence of certain specified events. The wife was to have full exclusive occupation rights until such a sale.

A trustee in bankruptcy was appointed in 1989 to administer the husband's estate and, in November 2005, the current trustee expressly applied for an order for sale of the property under the Insolvency Act 1986 and the Trusts of Land and Appointment of Trustees Act 1996. Both the husband and the wife opposed the order. At first instance, the judge held that the court should assume that the interests of the creditor should outweigh all other considerations, unless the circumstances of the case are exceptional by virtue of s.335A(3) of the Insolvency Act 1986. The wife argued that any rights that the trustee acquired by virtue of the husband were subject to her rights as established in the order. The judge rejected this argument finding that the wife's rights were qualified rights and, if a sale were ordered, the trustee would not violate these rights or assert a claim to the property other than subject to the wife's interest.

On appeal, the Court of Appeal (Ward LJ, Chadwick LJ and May LJ) held, dismissing the appeal, that under section 14(2)(a) of Trusts of Land and Appointment of Trustees Act 1996 the court has jurisdiction to make any order it sees fit (without consent if necessary) in relation to the exercise of trustees' powers and that ordering a sale of the property was not inconsistent with section 6(6) of the Act.

Chadwick LJ, giving the judgment of the court, concluded that, provided the application for sale had been correctly made under section 14 of the 1986 Act, then section 335A of the Insolvency Act 1986 applied. It was emphasised that in deciding whether to make an order the court should have regard to the matters in section 335A(2) and the terms of s.335A(3). The court held that the judge had been correct in his application of the law and that the order did not confer an express right on the wife that the property could not be sold, unless one of the specific events had occurred. The court directed that the case be listed for a hearing in the High Court to determine whether the circumstances of the case were exceptional, so as to displace the assumption that the creditor's interests outweigh all other considerations.

Smith v Smith [2007] EWCA Civ 454
This case has been included as an illustration of the approach taken by the courts to medium length marriages following Miller; McFarlane. The parties had been married for 10 years and, whilst they had no children together, the wife's 14 year old from a previous relationship was a child of the family. All of the assets emanated from the husband, including a company and the premises from which it traded (owned by a second company), which had been started by him before the marriage. The district judge at first instance, upheld on appeal by the circuit judge, made an order with the intention of providing the wife with 50% of the assets, together with periodical payments of £2,300 pcm on a joint lives basis. The husband was to retain the business, which he had founded prior to the marriage, valued at £450,000, whilst the wife would retain the business premises from which it operated and all the liquid assets.

The Court of Appeal (Thorpe LJ and Coleridge J) held that the district judge was wrong to adopt equal division as the starting point in circumstances where the assets all came from the husband and the marriage had only lasted 10 years. The unconditional transfer of the business premises to the wife from where the husband continued to trade, leaving an ongoing link between the parties as landlord and tenant, was a recipe for ongoing dispute and was likely to be wrong save in exceptional circumstances. To include the business at full value and also order periodical payments to the wife equivalent to half of the income earned by the husband from that business was double counting, particularly where the wife was also to receive rental income from the business. No account had been taken of the fact that the husband would be left with the risk laden assets, whilst the wife would retain the copper-bottomed remainder. A clean break was justified and desirable. The court held that the wife should retain the shares in the business which owned the property, but as a mechanism to provide security for her, a requirement that she hold the shares and not dispose of them for a specified period and on certain terms and conditions was made. Periodical payments were reduced to £1,500 pcm until payment of £180,000 was made after which the order would be discharged.

Joanna Goodall
Barrister with Addleshaw Goddard

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