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Winter Finance and Divorce Update (December 2010)

Edward Heaton, senior solicitor, Mills & Reeve LLP analyses the latest matrimonial finance cases.

Edward Heaton, Senior Solicitor, Mills & Reeve LLP

The winter update includes cases involving adverse inferences, adjournment and set aside applications, a "Sears Tooth" agreement, an injunction, cohabitation and bankruptcy.  The update also considers, albeit inevitably briefly, the Supreme Court judgment in the landmark pre-marital agreement case of Radmacher v Granatino and the guidance given by the Court of Appeal in the case of Robson v Robson on the treatment of inherited wealth in "big money" cases.

E v E (Financial Relief) [2009] EWHC 2901 (Fam), [2010] Bruce Blair QC sitting as a Deputy High Court Judge, 27 July 2009
The husband, a property developer, claimed to have been badly affected by the recession.  The wife alleged that there were substantial offshore funds about which the husband had told her during the marriage and she particularised the alleged existence of the funds at an early stage in accordance with the guidelines laid down in H v M [1992] 1 FLR 229.

The court found that the husband had been unreliable, antagonistic and uncooperative and had clearly given an inaccurate measure of his worth.  As such, the court was entitled to draw adverse inferences against him in accordance with Al Khatib v Masry [2002] 1 FLR 1053.

Gourisaria v Gourisaria [2010] EWCA Civ 1019 – CA (Mummery, Hughes LJJ), 13 August 2010
This case involved the court having to determine whether English ancillary relief proceedings should be put on hold pending the outcome of separate, relevant proceedings involving a third party in India.

The parties were both of Indian origin and the husband held a Swiss bank account with significant funds in it which he maintain constituted a trust-like arrangement for the benefit of his extended family.  Following the FDR, the husband's brother initiated proceedings in India claiming a beneficial interest in some of the funds in the Swiss account and the husband sought an adjournment of the English final hearing until such time as his brother's claim had been determined.  The District Judge stated that on no account would the English proceedings be adjourned until the proceedings had been concluded in India and the husband appealed in vain twice, the second appeal judge holding that the husband's adjournment application was merely an attempt to hijack the English proceedings and inviting the brother to intervene in England.  The husband appealed again.

The court held that, although the claim made by the husband's brother was a powerful reason to adjourn the English proceedings, the adjournment that the husband was seeking was general and very open ended, and there was no indication as to the future progress of the Indian proceedings.  The English proceedings were well advanced and the Indian proceedings had only just started.  In the circumstances, the judge had been correct in the use of his discretion to assess that, whilst there were difficulties in continuing with the English proceedings without the involvement of the husband's brother, the final hearing should go ahead, irrespective of the absence of the husband's brother's involvement and the ongoing nature of the proceedings in India.

Kingdon v Kingdon [2010] EWCA Civ 1251 – CA (Wilson, Toulson, Arden LJJ)
The case involved the court varying (as opposed to setting aside) the terms of an ancillary relief order in light of material non-disclosure by the husband.

A 2005 order provided for there to be a clean break with the wife receiving 50% of the assets and a further lump sum of £200,000.  In July 2008, however, the wife applied for the order to be set aside on the grounds of non-disclosure.  In March 2010, the judge found that there had been material non-disclosure but dealt with the issue by varying the 2005 order to include an additional payment to the wife of £481,000.  The husband appealed on the basis that, if the judge had held that there had been material non-disclosure, the whole order should have been set aside and the matter re-heard.

The appeal was dismissed.  The court had exercised its discretion in dealing with the wife's application to set aside and, in so doing, it had been entitled to find that the defect generated by the husband's non-disclosure could be remedied simply by extending the level of financial provision for the wife.  The court had considered the so-called "Section 25 factors" in 2005 and the discrete nature of the non-disclosure of the husband's assets was such that it did not need to reconsider them.

Radmacher v Granatino [2010] UKSC 42 – Supreme Court (Lord Phillips, Lord Hope, Lord Rodger, Lady Hale, Lord Brown, Lord Mance, Lord Collins and Lord Kerr)
This decision of the Supreme Court has received extensive coverage and the facts of the case need not be referred to at length in this update.  The judgment provided the clearest indications yet that there is taking place a fundamental shift in the law and the attitude of the court towards pre-marital agreements.  Whilst the judgment does not seek to alter the principle that it is a court, and not any prior agreement between the parties, that will determine the appropriate financial provision on divorce (since this is embodied in statute), Lord Phillips says that "the court should give effect to a Nuptial Agreement that is freely entered into by each party with a full appreciation of its implications unless in the circumstances prevailing it would not be fair to hold the parties to their agreement".  Applying the law to the case, Lord Phillips goes on to say in conclusion that the circumstances were such that the court felt that it "was fair that [the husband] should be held to [the] agreement [namely not to claim anything against the wife] and that it would be unfair to depart from it".  In short, the court placed decisive weight on the terms of the agreement in determining the outcome.

It should be noted that Lady Hale handed down a dissenting judgment.  Also, the Law Commission has yet to report on the issue of pre-marital agreements and there may therefore be more changes to come.

Robson v Robson [2010] EWCA Civ 1171 – CA (Ward, Hughes and Patten LJJ), 27 October 2010
This was a big money case involving a vast amount of inherited wealth which the parties had enjoyed during the course of their long marriage.  In short, the judge at first instance awarded the wife a £5m housing fund and a £3m income fund with which to fund her lifestyle on a clean break basis, the income fund being quantified with reference to the standard of living which the parties had enjoyed during the marriage.  The husband appealed on the basis (amongst others) that (i) the housing fund was excessive as the judge had failed to take into account at a hearing post judgment that the wife had found a property which would cost only £4m, (ii) the £3m income fund was excessive and (iii) the judge had been wrong to assess the wife's needs by reference to the standard of living enjoyed by the family as the wife had been "complicit in [the] profligate expenditure of [the husband's] inherited wealth".  The court allowed the appeal.

Of particular value to the practitioner is the per curiam guidance as to how the court should approach "big money" cases where there is inherited wealth offered by Lord Justice Ward at paragraph 43 of his judgment.  In short, the wording of s25 of the Matrimonial Causes Act 1973 should remain the main reference point with needs, compensation and sharing guiding the search for fairness.  The fact that wealth is inherited will justify it being treated differently from the "marital acquest" but other relevant factors need to be taken into consideration, such as the nature of the wealth, the approach adopted by the parties to that wealth during the marriage and the standard of living enjoyed by the parties.  The "weighing [of] the various factors and striking the balance of fairness [was], after all, an art not a science".

Sandler v Sandler & Lloyd-Platt & Co [2010] EWHC 1415 – Macur J, 18 June 2010
The wife had entered into a "Sears Tooth agreement" with her solicitors and a dispute arose over the extent to which the husband was entitled to set the amounts payable to him by the wife under a number of costs orders off against a lump sum payment that was payable by him under the ancillary relief order.  The court held that he could make the offset, despite the fact that the wife had assigned the funds to her solicitors under the Sears Tooth agreement.  The offset extinguished the lump sum payable to the wife.

T v T [2010] EWHC 2392 (Fam) – Sir Nicholas Wall P, 6 October 2010
The husband sought the (further) variation of an injunction by reducing the amount frozen from £500,000 to £68,000.  Whilst the wife accepted that a downward variation was appropriate, she argued that it should only be down to £150,000.

The court found that the husband would suffer no prejudice in a reduction to £150,000 and that he had been unreasonable in not accepting the wife's open proposal that there should be such a reduction.  The husband was therefore ordered to pay the wife's costs on an indemnity basis.

W v W [2009] EWHC 3076 (Fam) – Moylan J, 6 November 2009
This case involved the court having to consider how cohabitation should impact upon an application and cross-application to vary and capitalise spousal maintenance.

A 2004 order provided for the wife to receive a lump sum for housing and maintenance for herself and for the parties' single child.  In 2006, the husband sold his company and the sale prompted the wife to apply for an upwards variation and capitalisation of her maintenance.  The husband also sought the capitalisation of the wife's maintenance but on the basis of a reduction in the level of maintenance to reflect the fact that the wife was being supported financially by her new partner, with whom she was cohabiting.

The court held that the fact that an increase in wealth will not be out of the reach of an applicant for a variation simply because the increase came post divorce.  The marital standard of living is a factor that must be considered in any variation application, but neither that nor the applicant's needs is determinative.  The court must look at the overall concept of fairness and, whilst the three strands set out in Miller/McFarlane are important considerations, they are not heads of claim and put no ceiling on an applicant's claims.  In particular, the concept of compensation for relationship-generated disadvantage does not confine an applicant to an assessment of what she would have been able to earn if she had not married and had children.

Whilst the fact that an applicant is cohabiting will be a factor that the court has to take into account, cohabitation does not equate to marriage and automatically bring spousal maintenance to an end.  Uncertainty over an applicant's future plans is not in itself reason to refuse to capitalise a maintenance claim unless a fair outcome cannot be achieved until the uncertainty is resolved.  The wife's contributions as a mother entitled her to financial independence.  Her maintenance was therefore increased to £40,000 per annum and capitalised at £625,000.

Warwick v Trustee in Bankruptcy of Clive Graham Yarwood [2010] EWHC 2272 (Ch) – HHJ David Cooke, 13 September 2010
In short, the case concerned whether a payment made by the husband to the wife from "his" share of the sale proceeds of the former matrimonial home could be overturned upon application by the husband's trustee in bankruptcy by virtue of the fact that (i) at the time of a presentation of the bankruptcy petition, whilst the parties had reached an agreement in relation to most elements of their finances, the issue of pension sharing remained outstanding and there was therefore no enforceable agreement in place and (ii) the payment was made to the wife (the relevant disposition) after the presentation of a bankruptcy petition.  At first instance, the court held that there had been no enforceable agreement until such time as the financial consent order had been made (post the presentation of the bankruptcy petition).  The wife appealed on the grounds that, even if the court had not been wrong about the existence of an enforceable agreement (which she said that it had been), the agreement that had existed had been sufficient to raise an estoppel or give rise to a constructive trust in her favour.

The court held that, at the time of the presentation of the bankruptcy petition, the wife had not held an enforceable interest in that part of the husband's share of the former matrimonial home which was, post sale, to be transferred to her.  Those sale proceeds that the wife had received over and above "her" half were therefore payable to the trustee in bankruptcy.  The court held that no agreement had existed as the pension sharing arrangements remained outstanding and there could therefore have been no question of estoppel or a constructive trust arising.  The payment to the wife amounted to a lump sum payment and there was no suggestion of there being any prior change to the beneficial ownership of the former matrimonial home.

However, the court cast some doubt over the law established by Xydhias [1999] 1 FLR 683 and, whilst it did not need to decide the issue, it flagged up the fact that it agreed with the wife that Xydhias was "inconsistent with earlier decisions" which had held that, in principle, an agreement between parties satisfying all of the normal contractual requirements might be enforceable.

Wright v Wright [2010] EWHC 1808 (Ch) – HHJ David Cooke, 15 July 2010
This court involved the enforcement of an agreement reached between the parties involving an ancillary relief order being made by consent which was designed essentially to defraud the husband's creditors.

In short, the husband engineered a financial agreement on divorce which provided for him to pass most of his assets to the wife to protect them from bankruptcy, it allegedly having been agreed between the parties that they would later reconcile, whereupon the wife would return the assets to the husband.  When the wife subsequently refused to reconcile, the husband sought the court's assistance.

The court was not prepared to come to the husband's aid.  If there had been an agreement along the lines suggested by the husband, it would not have been effective as, in ancillary relief proceedings, beneficial title is transferred on decree absolute.  The parties had been free to vary the terms of the consent order after the order had been made but not to agree, before the order was made, to give effect to the order in a way that was not envisaged by the court.  Any such agreement was an attempt to deceive the court.  The court would not assist a party who had made an arrangement designed to defrauding creditors and referred to its jurisdiction to set aside a consent order if it suspects collusion.