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Ancillary Relief Update – March 2010

Joanna Grandfield, barrister with Mills & Reeve, analyses the latest key ancillary relief cases.

Joanna Grandfield, Associate and Barrister, with Mills & Reeve

The spring update includes cases dealing with a variety of topics, including the approach that will be adopted by the courts to the obtaining and use of Hildebrand v Hildebrand [1992] 1 FLR 244 documents; an analysis of case law since Miller v Miller: McFarlane v McFarlane [2006] UKHL 24 and reasons for departure from equality of division of assets; the quest for a clean break; the impact of cohabitation on periodical payments; application of the law relating to constructive trusts for cohabitants; and an example of when a pre-marital agreement can effectively be disregarded within ancillary relief proceedings. 

Imerman v Imerman [2009] EWHC 3486 (Fam) Moylan J , 11 December 2009 and Imerman v Imerman (Supplemental Judgment) [2010] EWHC 0064 (Fam) Moylan J, 13 January 2010
This case highlights the inherent tension between ensuring justice is done to parties to ancillary relief proceedings and discouraging engagement in tortious or illegal acts to obtain evidence to enable such justice to be done within those same proceedings. The decisions of Moylan J on 11 December 2009 and 13 January 2010 are the first reported judgments of the Family Division following the earlier decision of Eady J in the Queen Bench Division, about which more below. 

The husband shared office space and a computer server with the wife's brothers.  Around the time that the wife issued divorce proceedings in December 2008, the brothers downloaded password protected files relating to the husband's personal dealings from the server.  The downloaded documents were substantial, running to between 250,000 and 2.5 million pages, part of which were provided to the wife who in turn passed them to her solicitors.  The material was initially held in 11 lever arch files.  The wife's solicitors went through these and filleted out material and returned to the husband that which they considered to be privileged.  This left 7 lever arch files in the wife's solicitor's possession.  The material had been read by the wife, some of her solicitors and at least junior counsel but not the court. 

The husband issued proceedings in the Queens Bench Division for injunctive relief against the wife's brothers and a summons in the Family Division seeking return of the 7 files and orders restraining the use of that information.  Mr Justice Eady heard the applications in the QBD (see Imerman v Tchenguiz & Anor [2009] EWHC 2902 (QB) - Eady J, 16 November 2009) and made orders in which the brothers were prohibited from communicating or disclosing any confidential information they had obtained to any third party including the wife and her solicitors and to deliver up all the documents that they had.  The Judge considered that there was a powerful case for saying that password protected data held on a computer is probably confidential irrespective of its actual content, and that issues as to admissibility and the use that the wife should be permitted to make of the information was a matter for the Family Division.  Permission to appeal those proceedings has been granted and consolidated with the wife's proposed appeal of the current decision.

In March 2009, the husband made a without notice application and obtained an order prohibiting the wife and her solicitors from making use of any of the confidential information that her brothers had obtained.  The Judge before whom the application came, Coleridge J, declined either to join the wife's solicitors to the husband's application or to order exchange of Forms E prior to determination of the husband's application.  The Judge also ordered that the wife could not make any use of the information in the 7 lever arch files for the purpose of defeating the husband's current application for return of the files.

The matter then came before Moylan J, who was asked by the husband to order return of the 7 files and for associated orders to restrain use of that information, including in the ancillary relief proceedings.  The wife sought orders that the parties file and serve Forms E and that the privileged information that had been filleted and returned to the husband already be retained by the husband's solicitors pending determination of her application for ancillary relief.

In short, Moylan J considered whether, and if so in what circumstances, one party can obtain/retain and/or make use of confidential information belonging to the other which has been obtained other than through the court process and possibly in a manner which amounts to a crime and/or a civil wrong.  In addition, the Judge considered what powers the court has to prevent such information from being used in ancillary relief proceedings, and the extent to which privileged material should be treated differently.

Moylan J considered the case law relating to Hildebrand , culminating in the summary of the effect of Hildebrand provided by Ward LJ in White v Withers [2009] EWCA Civ 1122 at [37]:

"The family courts will not penalise the taking, copying and immediate return of documents but do not sanction the use of any force to obtain the documents, or the interception of documents or the retention of documents, nor I would add, though it is not a feature of this case, the removal of any hard disk recording documents electronically.  The evidence contained in the document, even though it is wrongfully taken, will be admitted in evidence because there is an overarching duty on the parties to give full and frank disclosure.  The wrongful taking of documents may lead to findings of litigation misconduct or orders for costs".

Moylan J also noted Ward LJ's warning that this sort of self-help is risky since the Matrimonial Causes Act is no defence to the torts of trespass or conversion.  The Judge also noted Wilson LJ's opposition to the present situation whereby evidence is admissible in family proceedings notwithstanding the tortious liability attached to it, and noted that Wilson LJ took issue with Ward LJ's statement that wrongfully obtained evidence "will" be admissible. 

The Judge considered the competing public interest in ensuring the reality of the position is before the court in litigation and ensuring that courts do not acquiesce in, or encourage a party to use unlawful means to obtain evidence.  If such information is to be admitted in evidence, the court can reflect its disapproval of the manner in which it was obtained in orders for costs.  Moylan J also considered human rights implications and the balance that needed to be struck between the husband's Article 8 right to respect for his family and private life with the wife's right to a fair trial under Article 6. 

Moylan J considered that the documents were admissible in family proceedings regardless of how they were obtained and even in circumstances where, as here, this interfered with, the husband's rights under Article 8 of the European Convention on Human Rights.  The court has a discretion as to whether to permit use of irregularly obtained information.  In exercising that discretion, the court must carry out a balancing exercise with reference to the following:

The more extreme the nature of the irregularity the greater the likely interference with Article 8 rights and therefore the greater the need to justify any interference with those rights as proportionate.

Since the documents had been read by the wife's solicitors and at least one junior counsel it was too late for the husband to try to quarantine it, nor was it right or proportionate to make the orders sought by the husband without permitting the wife to use the information in seeking to justify what had taken place and her proposed use of it within ancillary relief proceedings.  That said, the husband was entitled to the return of the privileged information.  The files were to be delivered to his solicitors for filleting of any privileged information before being handed back to the wife's. 

A supplemental judgment was handed down on 13 January 2010.  In addition to ancillary matters, Moylan J considered the question of costs, which by this time amounted to £1m in total.   The husband was awarded his costs on an indemnity basis, following guidance found in Jones v University of Warwick [2003] 3 All ER 760, which makes it clear that the court should neither acquiesce in nor encourage the sort of activity that had been engaged in and since the wife had not sought to argue that she did not know what her brothers had been doing.   That said, the court at final hearing was to retain the ability to take the wife's costs liability into account when determining its award as part of it assessment of the litigation conduct of the parties. 

Permission to appeal has been granted.

J v J [2009] EWHC 2654 (Fam), Charles J, 21 January 2010
This careful decision of Charles J provides a thorough analysis of the reported cases since Miller; McFarlane and the interplay of the principles to apply to ancillary relief cases so as to achieve a fair outcome.  In doing so, and with particular reliance on Charman v Charman [2007] 1 FLR 1246 (Charman (No. 4)), Charles J establishes that a departure from equality in application of the sharing principle is permissible on the basis of "good reason".  Such "good reason" could include pre-acquired or gifted assets; an increase in value of an asset post separation; or the way that the parties chose to conduct themselves during the marriage. 

The husband was a diving equipment entrepreneur who had married the wife when she was 30 and he was 44.  This was a second marriage for them both.  The marriage lasted for 9 ½ years, the parties separating in 2006.  The wife received maintenance for her daughter from her first husband, and been supported financially in part by her own mother during the marriage.  She continued to live in a house in Buckinghamshire which she had owned prior to the marriage (bought with money loaned from her mother), the husband joining her there at weekends.  During the week the husband lived in a Scottish castle he had bought during the marriage and which was close to his business.

The wife's claim for ancillary relief included maintenance for her daughter, now 15, and who was 2 at the time of the marriage.

Some eighteen months after separation and during the ancillary relief proceedings, the husband sold his business for £25m net of tax and costs.  He had not previously disclosed either the negotiations for the sale or the huge increase in the value of his shares since separation, which were a result of the interest of a foreign company and other market-related matters.  The husband conceded that there should be an add back of £3.8M to reflect his spending levels since benefitting from the increased value of the business.

Charles J held that, whilst the parties lived separately much of the time, this was because the wife's daughter was settled at school in England.  The husband's submissions that he had provided minimal financial support to the wife (who benefited from maintenance from her first husband for their daughter as well as from her mother) was rejected.  Both the husband and his mother-in-law had provided the wife with significant financial support.  The loan from the wife's mother to enable the purchase of her Buckinghamshire property was a soft one. 

The Judge held that, whilst the date at which the assets are to be taken into account and valued for the purpose of the s25 exercise is that of the trial, the existence of pre-acquired or gifted assets supply "an established trigger, or a good reason, for a departure from equality within the application of the sharing principle".

Post -separation gains or enhancement in the value of assets also provide a good reason to depart from equality within the application of the sharing principle.  However, the extent of any departure will be informed and/or dictated by needs.

The wife's income needs were assessed at £150,000 p.a.  Taking into account the support received from her mother the husband's contribution was assessed at £40,000 to £50,000 p.a. and capitalised at £4.2m plus a sum for the wife's costs.

Insofar as sharing was concerned, the wife's house was ring-fenced as being pre-acquired and to omit funds received from her family.  The husband's business was also pre-acquired and had increased substantially in value post-separation.  The Judge observed that the marriage had lasted for around one quarter of the husband's working life and considered that to attribute 60% of the value of the business at separation would reflect the pre-marriage period whilst acknowledging the importance of the years of the marriage.  This also took account of the fact that there had been no major change of direction in the business during the marriage.  That percentage was mirrored in relation to the increase in the value of the business post-separation.  This resulted in an 80/20 split in the husband's favour on the basis that 40% attributable to the years of the marriage was shared equally. 

The wife was therefore entitled to £5m, being 21% of the value of the husband's shares net of costs when sold, plus half the value of numerous cars bought during the marriage and half the net value of the Scottish castle.  Whilst bought in the husband's name, the castle was bought during the marriage as a home for the family and so should not be ring fenced.  The wife's claim for maintenance for her daughter failed, although the Judge noted that the award to the wife would enable her to spend freely on the daughter's maintenance and education should she choose to do so.

The combined costs at trial totalled £1.7m.  Charles J concludes with some "final general comments for the profession", advocating an exchange of documents identifying the building blocks of cases to be advanced by the parties following a failed FDR so as to aid preparation for a final hearing, reduce reliance on irrelevant or information and minimise the taking of tactical decisions that simply increase costs. 

Lyons v Lyons [2010] EWCA (Civ) 177 (Thorpe, Waller, Rimer LJJ), 21 January 2010
This decision of the Court of Appeal illustrates the difficulties encountered in achieving a fair settlement in the current economic climate whilst seeking to achieve a clean break wherever possible.

At first instance capital was divided broadly equally.  A charge of £1.34m given to the bank by the husband over commercial property owned by the wife was ordered to remain in place.  This was since it was unlikely that the bank would agree to the release of the charge, and the husband had no other means of raising the funds needed to replace that charge from other resources.  The order included provision for the husband to use his best endeavours to procure the release of the wife's property from the charge.

The Court of Appeal held that such an arrangement was inconsistent with a clean break, since the husband's undertaking was unlimited in time and required him simply to use his best endeavours.  At the end of a marriage, it is undesirable for one spouse to be able to use property owned by the other to secure borrowing.  The Court substituted an order that limited the husband's undertaking to a two year period.  If the husband had not procured the removal of the charge by then, an order would be made that he should pay a lump sum to the wife of £1.34M, which she would undertake to receive purely for the purposes of passing on to the bank.  The husband was granted liberty to apply should there be a change of circumstances.

Grey v Grey [2009] EWCA Civ 1424 – CA (Thorpe, Wall and Patten LJJ) 31 December 2009 
This decision deals with the impact of cohabitation on orders for periodical payments. 

The parties met in Ireland whilst they were teenagers, became a couple in 1996 and underwent an invalid marriage ceremony in 1998.  Following the birth of their daughter in 2001, the parties had a valid wedding in 2003, before separating in 2005.  The assets at the date of the marriage were £3M and were divided equally.  The husband was a banker.  The wife failed to disclose the fact that she was 17 weeks pregnant by her new partner as at the date of trial.  She denied living with her new partner and the judge at first instance declined to find that she was, notwithstanding the substantial evidence placed before it by the husband, including that from an enquiry agent.  No evidence was placed before the court as to the extent to which the new partner was contributing to the wife's household nor the means that he had to do so.  All the court knew was that the partner was married but separated and therefore not in a position to marry the wife; that he owned a house in a fashionable part of Dublin and had a good job.  At first instance, the husband was ordered to pay the wife periodical payments of £135,000 p.a. backdated to the date of the application in November 2006 and at £125,000 p.a. going forward with child maintenance set at £15,000 p.a. in addition. 

On the husband's appeal, the court held that the first instance judge had made inadequate findings as to cohabitation.  The wife and her new partner were indeed living together and the financial consequences of their cohabitation had to be investigated and assessed. 

Once a finding of cohabitation has been made, the next step is to consider its relevance to the husband's liability to the wife.  The Court observed that there is an obvious motivation to avoid any pooling of income to meet expenditure to protect a claim for maintenance.  As such (emphasis added) (at 28):

"The real question will generally not be what he is contributing but what he ought to contribute"

And at [30]

"A judge could not be fair to the husband as the payer without investigating whether Mr Thompson was making any financial contribution to the household; if not, what was his capacity to make a contribution.  Mr Pointer said that Mr Thompson, resident within the Irish Republic, was not a compellable witness.  That circumstance did not prevent investigation.  The judge had only to require the wife as applicant to produce evidence of Mr Thompson's means or risk the drawing of adverse inferences."

That said, the arguments first advanced in K v K (2006) to the effect that post-marital cohabitation should be taken into account as a natural extension of the fact that pre-marital cohabitation is now generally included in the length of the marriage were rejected.  Since there is no legal entitlement to financial contribution as between cohabitants on relationship breakdown, "The argument is superficially attractive but in my judgement does not run unless and until the applicant has acquired a statutory claim against a new partner" (at [41]).

The case was remitted to the High Court for consideration of the cohabitant's capacity to contribute to the wife's outgoings and the extent to which this should discount the husband's liability to pay periodical payments. 

Walsh v Singh & ors [2009] EWHC 3219 (Ch) Judge Purle QC, 15 December 2009
Whilst this decision doesn't change the law, it is briefly included in this update as a further example of the application of the law relating to cohabitants and constructive trusts.

The claimant gave up a career as a barrister to run an equine business from property owned by her former fiancé, the defendant, which had been purchased by him during the parties' relationship.  Whilst the claimant loaned monies to the defendant to enable some surrounding fields and a paddock to be bought, the property and business was owned by the defendant, who was responsible for losses it had made, throughout. 

When the relationship broke down, the claimant asserted that she had been promised a half share in the equity in the property on at least two occasions and claimed an interest in the property, either as a result of an express or implied trust.  She argued that she had given the defendant significant assistance in searching for an appropriate property; researching its planning potential; and carrying out and supervising renovation works.  The claimant further argued that she would never have given up her career at the Bar without an assurance that half the property would be hers.  In the alternative, the claimant argued that she was entitled to a quantum meruit based on unjust enrichment to reflect the value of her contribution to the project.

Judge Purle QC held that, whilst the claimant had contributed to the business in all the ways she suggested, she had overstated the extent of her efforts.  Whilst her contributions were sufficient to give rise to a constructive trust or estoppel, they did not do so since she had not been able to show the necessary common intention and detrimental reliance which must flow from the same.  The defendant had seen the purchase of the property as an investment opportunity and had not promised the claimant an interest in it.  The claimant had given up her career at the Bar as she preferred to work with horses, and had done so in the context of her relationship with the defendant rather than on the basis of a belief that she had or would acquire a beneficial interest.  Further, any claim for unjust enrichment faced insurmountable difficulties in evaluating its extent, since this would require the court to enter an analytical process which it would not be able to do satisfactorily in the context of a domestic relationship.  Finally, the Judge noted that permitting the claim to succeed would open the floodgates to those with dashed expectations of a relationship seeking to make claims for unjust enrichment.

F v S [2009] EWHC 2485 (Fam) King J, 17 July 2009, [2010] Fam Law 128
This case is included briefly as an example of a pre-marital agreement being given little or no weight by the court.

The parties married in Switzerland having signed a separation of property contract in France.  During the final hearing neither party called evidence on the contract nor was a translation of it before the court.  The district judge held that the couple had only entered into the pre marital agreement because they understood it to be required by French law.  They did not know the lawyer and had no knowledge of the legal provisions upon which it was based.  15 years later they divorced.  The husband was ordered to pay a lump sum of just over £400,000 and make periodical payments to the wife.  The husband appealed on the basis that the district judge had failed to give decisive weight to the pre marital agreement and sought a variation of the periodical payments.

On appeal to the High Court, King J allowed the husband's appeal in relation to the duration of the periodical payments alone.  The principles of the case and circumstances surrounding the contract were very different from those in Radmacher v Granatino [2009] EWCA Civ 649.  In Radmacher, the agreement had been imposed by the wife's family.  In the instant case, the agreement was simply an administrative necessity imposed by the State and was therefore within the court's jurisdiction to give it no weight in carrying out the s25 exercise.