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Finance & Divorce Update Summer 2011

Joanna Grandfield, barrister with Mills & Reeve, analyses the latest key matrimonial finance cases.











Joanna Grandfield
, Associate and Barrister, with Mills & Reeve LLP

The summer update deals with cases involving disputes as to forum, impact of the failure to give full and frank disclosure, security for costs as a condition for appealing an order, Hadkinson orders; applications to set aside, trusts and non-matrimonial assets and the impact of cohabitation on periodical payments.

Forum races, full and frank disclosure, security for costs
Golubovich v Golubovich [2011] EWCA Civ 479, [2011] All ER (D) 72
(April) (Thorpe LJ, Etherton LJ, Baron LJ)
The latest instalment of the divorce of a fabulously wealthy Russian couple, in brief, the parties married in 2007 when the wife was 24 and the husband 23.  Whilst the wife, a fashion student, came from a wealthy family herself, the husband, a financier, came from an extraordinarily wealthy family who were the Russian equivalent of Tescos.  Following the marriage, the parties lived in a property in Kensington owned by the husband's mother, and spent at an extraordinary rate, allegedly spending over £2m between them during the 18 month marriage during which one child was born. 

A forum race took place which culminated in the husband's successful appeal of the decision of the English court not to recognise the Russian decree of divorce (Golubovich v Golubovich[2010] EWCA Civ 810).  That judgment was handed down on 13 July and led to the wife's application for financial remedy being transferred from MCA 1973 to Part III MFPA 1984 the following day, which was to have been the first day of the final hearing of her application under the MCA 1973.  The husband unsuccessfully applied for an adjournment of those proceedings.

The day before the Court of Appeal judgment on the divorce proceedings, on 12 July the court held that the beneficial interest in the matrimonial home was owned by the husband's parents, which had the effect or reducing the assets in the UK which could be identified as being those of the husband from £4m to £1m (being the investor deposit that had been required to enable the parties to live in the UK). 

The husband failed to give full and frank disclosure, as a result of which the Judge hearing the main application for a financial order (now under Part III MFPA) was left with only perfunctory disclosure and oral evidence which he had rejected.  Notwithstanding this, Moylan J concluded that, although he could not pinpoint the source of the husband's present and future funds, he could comfortably meet the wife's needs.  The husband was ordered to pay to the wife a lump sum of £2.485m, periodical payments for the child of £60,000 p.a. and her costs totalling £350,000.

The husband appealed both the refusal to adjourn the final hearing of the wife's application under Part III MFPA and the judgement of Moylan J in those proceedings.  The appeal was dismissed, the court holding:

• Any appeal against a grant of permission is extremely hard to make good and progress in the Court of Appeal unless the judge had been misled or fallen into an error of fact or law.  If his decision was within the exercise of his discretion, then that entitled the Court of Appeal to support it.

• The failure to adjourn the proceedings was a pragmatic, sensible decision in circumstances where the case had already been postponed from May to July.

• In terms of the application under Part III MFPA 1984, as a general principle, if a court in state A pronounced divorce, it was not for a court in state B to deal exclusively with the financial issues.  However in the present case, whilst the Judge might have more explicitly spelt out the source from which he anticipated judgment would be satisfied, it was implicit in that judgment and plainly within his discretion.

• If a litigant deliberately played games with the court the judge was obliged to found the award partially on speculation which would ensure that he did no injustice to the litigant that had cooperated. If a defaulter ended up with an unpalatable order then he had brought that upon himself.

Practitioners are also referred to Golubovich v Golubovich [2011] EWCA Civ 528, in which Wilson LJ ordered these proceedings be stayed until the husband paid £30,000 into court in respect of the wife's costs of the husband's application for permission to appeal the financial order under Rule 3.1(3)(a) CPR 1998. 

Matrimonial & Family Proceedings Act 1984, interim maintenance, Hadkinson orders
M v M  [2011] EWHC 3574 (Fam) and [2010] EWHC 2817 (Fam)
This case considered the jurisdiction for making an order for interim periodical payments under MFPA 1984 and the circumstances in which it was appropriate to make a Hadkinson order against a Respondent. 

The parties married in Moscow in 1991 and moved permanently to the UK in August 2005.  The family home was worth an estimated £4m and Forbes estimated the husband's wealth at £150m.  In 2008 the parties separated, the wife moving out of the family home with the two children.  The husband's financial support was essentially limited to payment of school fees and providing allowances and gifts for the children.  The wife was reliant on (very generous) friends to support her financially. 

The husband then moved out of the matrimonial home, changed the locks and refused to allow the wife and children to move back in, leaving them to rent a property for £12,000 pcm (paid for by her friend).  In the meantime, the husband moved into another property in north London and bought a boutique hotel in the West country for £2.5M. 

The wife applied for interim maintenance under Part III MFPA 1984.  The case came before King J, who found that the husband had "engaged with the litigation on only the most superficial level" [at 13].  His disclosure (consequent to an earlier freezing order) was limited, he had failed to provide an affidavit of means in the instant proceedings and had failed to explain its absence or even appear before the court.  The court had no idea of the extent of the husband's wealth other than the fact that he had spent £15.5m on property in London since 2005 and over £1m on refurbishment.  None of the properties were either income producing or let and the children were at an expensive boarding school. 

King J made a Hadkinson order (Hadkinson v. Hadkinson [1952] FLR 287) preventing the husband from making any further representations in the proceedings for interim periodical payments, and went on to consider the jurisdiction for making an order for interim periodical payments in proceedings under Part III MFPA 1984.  Section 14 of that Act provides for the following (emphasis added):
14 Interim orders for maintenance

(1)     Where leave is granted under section 13 above for the making of an application for an order for financial relief and it appears to the court that the applicant or any child of the family is in immediate need of financial assistance, the court may make an interim order for maintenance, that is to say, an order requiring the other party to the marriage to make to the applicant or to the child such periodical payments, and for such term, being a term beginning not earlier than the date of the grant of leave and ending with the date of the determination of the application for an order for financial relief, as the court thinks reasonable

The Judge considered the meaning of "immediate need" and found it to mean "current" as opposed to "urgent".  King J then considered Agbaje v Agbaje [2010] 1 AC 628, noting that the Supreme Court made it clear that neither hardship nor injustice is a precondition for the exercise of the jurisdiction [72] nor is it only appropriate for the English court to intervene with financial relief to the minimum extent necessary [63] in applications under MFPA 1984.

Holding that the hurdle for successful applications for interim maintenance under MFPA is no higher than that for applications under s22 MCA 1973, the Judge held that the limitations imposed by s14 are as follows:

(i) no order for interim maintenance will be made until leave to make a Part III order has been given;
(ii) under s14(2), the jurisdiction must be founded on domicile or habitual residence (as opposed to an interest in a former matrimonial home in this jurisdiction);
(iii) The applicant must be in 'immediate need' and the provision is to be reasonable.

The Judge considered the wife to have overcome the hurdle and to be entitled to interim provision.  Criticising the husband for the "flagrant waste of family money" being spent on the wife's rent when the matrimonial home was available, interim periodical payments were set at £460,000 p.a., of which £150,000 was for rent and £10,000 pcm towards legal fees. 

Applications to set aside
Gordon (formerly Stefanou) v Stefanou [2010] EWCA 1601 Civ,
This case is the wife's appeal against Singer J's decision to refuse her application to reopen ancillary relief proceedings.  For the first instance decision, see S v S (Ancillary Relief after Lengthy Separation) [2006] EWHC 2339. 

The parties separated in 1996 after a 20 year marriage.  Three years after separation, the husband set up a company, Accord Plc, of which he was the major shareholder.  Decree nisi and absolute were granted on the basis of 5 years' separation in 2003 and the wife commenced ancillary relief proceedings.  A major issue between the parties concerned the value of the husband's shares in Accord plc, which the wife's expert valued at £30m by the time of the final hearing in April 2006 and which the husband's expert said had no appreciable value.  At the conclusion of the hearing in early May 2006, Singer J adjourned the matter to await the House of Lords decision in Miller; MacFarlane.  Judgment was eventually handed  down in September 2006.

In his judgment, Singer J considered the long delay between separation and initiation of legal proceedings and the fact that the creation of Accord Plc had been achieved post separation without support or contribution from the wife to be magnetic factors.  The husband was ordered to transfer the matrimonial home to the wife and awarded her a lump sum of £1.1m payable in two tranches due 20 December 2006 and 20 December 2007. 

During the period between the conclusion of the hearing and the handing down of judgment, a re-financing deal for Accord Plc was agreed as a result of which the husband received large sums as belated dividends for his preferential shares which was not disclosed to the court.  A combination of that deal and borrowings from his brother enabled the husband to have met his financial obligations under the order by the end of 2006.

The following summer, July 2007, Accord Plc was in fact sold for £130m.

The wife applied to set aside the order made in October 2006.  Singer J refused the application on the basis that he did not regard himself as having been misled by the husband since, even if he had known about the re-financing of Accord Plc it would not have altered his original decision.  The wife's appeal was dismissed, the Court of Appeal finding that, although the judgment might have been written differently had the husband disclosed the re-financing that occurred in July 2006 the result would not have been materially different.  It had plainly been open to the judge to have regarded the 10 year period before ancillary relief proceedings had been issued and the fact that the activities had occurred entirely from the husband's own efforts as being the central feature of his decision.

Treatment of non-matrimonial assets
K v L  [2011] EWCA Civ 550
(Laws LJ, Jacob LJ, Wilson LJ) 13 May 2011
This case, involving the husband's appeal against an order that the wife pay him a lump sum of £5m on a clean break basis (see K v L [2010] EWHC 1234 (Fam) involves consideration of the treatment of non-matrimonial assets.  The wife, who was 52, had assets which were entirely non-matrimonial, consisting of shares inherited when she was aged about 15.  When the parties began cohabiting in 1986, her shares were worth about £300,000; had increased in value to £700,000 on marriage in 1991, were worth about £28m by separation in 2007 and were valued at £57.4m by the time of the final hearing.  There were 3 school age children.

During the marriage, neither party had worked and, despite the wife's wealth, the family lived modestly in a semi-detached house valued at £225,000 in the suburbs of London.  On separation, the wife transferred the matrimonial home into the husband's sole name and bought another similar property nearby.  The children predominantly attended state schools.  The family's average annual expenditure during the later years of the marriage was £79,000, with the family running the same modest car for a number of years. 

Although the husband's claims for interim maintenance were similarly modest (£30,000 – £48,000 for himself and £12,000 for the children when they were with him), his substantive claim was for £2m for housing, £450,000 for a second home in Israel, £60,000 for a new car and periodical payments of £105,000 p.a. (exclusive of the costs of the children when with him). 

Bodey J awarded the husband £5m, which reflected the wife's open offer.  He noted that, with resources of his own of £300,000 (the former matrimonial home), the husband would be able to buy a property in central London and, according to the Duxbury tables, benefit from net annual income of £130,000, inflation linked, for himself.  Given the family's lifestyle during the marriage, the award went further than very generously meeting the husband's needs. 

On appeal, the husband argued that the first instance judge had erred in principle in limiting his award to a generous assessment of needs, and contended that the judge had failed to make an assessment by reference to the sharing principle which would have yielded him a total of £18 million.  H submitted that the Judge had:

• discriminated against him by attaching great importance to the wife's provision of the family's income;

• failed to recognise the importance of the fact  that the source of assets would diminish over time; and

• effectively found that the wife had made a special contribution to the family's welfare.  Therefore he should have followed the guidance in Charman v Charman [2007] EWCA Civ 503 to the effect that allowance for special contribution within the sharing principle would be most unlikely to cause a departure from equality further than two-thirds/one-third.  As such, his claim for £18m from a pot of £57m was appropriate.

• In light of the awards in several other reported decisions involving non-matrimonial property, to award only 9.3% of the parties' assets was disproportionate.

The appeal was dismissed, the Court holding:

• The complaint of discrimination was founded upon a misunderstanding.  What was unacceptable was discrimination in the division of labour within the family and, in particular, between the breadwinner and the homemaker (as per White).  Bodey J had been careful to stress that, as neither party went out to work, their work in the home, although different, should be taken to be a contribution of equal value for the purposes of the award.  The finding that the wife had made a very important financial contribution did not discriminate between the parties in any unacceptable way but correctly recognised a substantive difference (at 15).

• The true proposition was that the importance of the source of assets might, not would, diminish over time.  There were no facts to justify concluding that, as long as the marriage proceeded, there was a diminution in the importance of the source of the parties' entire wealth. 

• The phrase "special contribution" was used to describe a contribution entirely different from that of non-matrimonial property.  A special contribution arose in circumstances in which a spouse's contribution, direct or indirect, to the creation of matrimonial property had been so extraordinary as to dictate a departure within the sharing principle from the ordinary consequence of its equal division.  By contrast, although non-matrimonial property also fell within the sharing principle, equal division was not the ordinary consequence of its application; rather, extensive departure from equal division was the ordinary consequence.  The wife's contribution of non-matrimonial property was quite different from the special contribution addressed in Charman

• None of the decisions cited by the husband involved assets that were entirely non-matrimonial and an award by reference to the sharing principle in excess of the applicant's needs (at 22).

Finally, at the outset of the hearing, a joint application was made to prevent the publication of the names or photographs of the parties and the children or of any information that would lead to the children being identified.  Acknowledging how rare it was for the Court of Appeal to make such an order, Wilson LJ said that the application had been granted to protect the rights of the parties' children under the European Convention on Human Rights 1950 art.8 since despite the wife's financial position, the parties had over many years carefully made a normal life for the children in which even their friends were unaware of their wealth.  Public knowledge of the details of the family finances would substantially, perhaps even grossly, affect that normality.
Trusts

Whaley v Whaley [2011] EWCA Civ 617 (Mummery LJ, Black LJ, Lewison J) 24 May 2011
The husband and wife, who were 60 and 47 respectively, were married for over 20 years and had four children aged between 12 and 20.  Family life was split between England and Spain.  In 1997 the wife and the children moved back to England so that the children could attend English schools whilst the husband maintained his long term residence and domicile in Spain, primarily for tax reasons. 

At first instance, the husband asserted that the assets amounted to £3.173m after legal costs.  The wife submitted they were £11.873m.  The difference between the two contentions was the treatment of two dynastic trusts (the Farah Trust and the Yearling Trust) in which the husband had an interest.  Perhaps unsurprisingly, the husband argued that these trusts should be regarded as non-matrimonial property, the wife the opposite.  

The husband's father had created the Farah Trust of which the husband (together with his two brothers and remoter issue plus charities) was a beneficiary.  The Judge held that the husband was entitled to assets in the Farah Trust (worth about £4.6m). 

The Yearling Trust had been set up in 2008 by the trustees of the Farah Trust to move assets for tax reasons.  It owned the freehold of a golf course subject to a lease to a management company.  This asset had been transferred from the Farah Trust because the husband had concerns about his tax position, which were under investigation by HMRC.  Although the terms of the trust were identical to the Farah Trust, the beneficiaries were not.  The only beneficiaries of the Yearling Trust being the parties' four children and the four children of one of the husband's brothers.  Nonetheless., the Judge found that the trust's value should be taken into account since the husband could be added as a beneficiary at any time ("as and when it was considered that that the tax challenge had ended"), and he had sought to alienate his assets by allowing assets from the Farah Trust (the golf course land) to be transferred to the Yearling Trust ("I expect that H also appreciated that the creation of the sub trust had the added advantage that it might also be seen to distance the golf course from him in the event of divorce").  The judge also found that there had never been any real intention of benefiting the named beneficiaries.

Insofar as the trusts were concerned, Baron J held that the husband had tried to conceal the truth behind the trust holdings.  In particular, the trustees and protectors of the trusts had given false information designed to defeat the wife's claim and, as trustees, had effectively carried out the husband's bidding.  Her view was only bolstered when one of the trustees failed to attend the hearing to be cross-examined despite a clear expectation that he was to do so. 

At first instance, Baron J accepted the wife's case that the trusts should be seen as resources likely to be available to the husband and included £7m from the two trusts in arriving at the figure of £10.4m as being the resources available to the parties. 

The Judge's order required the husband to pay a lump sum of £3m by 27 May 2011 and meanwhile make spousal periodical payments of £40,000 p.a. as well as child maintenance, school and college fees.  On payment of the lump sum, the spousal maintenance would cease and the wife was to transfer her shareholding in a golf club management company to the husband.  The wife would receive 35% of the assets, the departure from equality being appropriate given the pre-marital wealth of the husband and the provenance of the assets in trust being from his parents. 

The husband appealed, arguing that the award:

• put improper pressure on the trustees to provide him with funds from the trusts in order to comply with the order and meet his own needs and should have left the Yearling Trust out of the equation as he was not a beneficiary;

• overvalued a Spanish property and failed to recognise that the golf course would have to be sold, thereby rendering the management company valueless;

• been over-generous to the wife by failing to give weight to the liquidity issues, the effect on the husband's  financial position and the inherited nature of the trust assets and had treated the case as a "sharing the fruits of the marriage case" rather than a needs case; and

• erred in an assessment of income needs. 

The appeal was dismissed, the Court finding:

• The judge had asked the proper question of whether the trustees were likely to advance capital to the husband and had arrived at the unassailable answer that the trustees of both trusts were likely to do whatever the husband asked, including making capital available to him (Charman v Charman [2005] EWCA Civ 1606).  In those circumstances she had no choice but to treat the trust assets as part of the husband's resources for the purposes of s.25(2)(a) Matrimonial Causes Act 1973 and there were no grounds to complain of improper pressure.

• In the absence of an evaluation of the risk that the Spanish property might have to be demolished, the judge had been entitled to form her own view, which was well within the range of conclusions open to her and supported by the evidence. 

• The judge had considered the liquidity of the assets, and had been conscious of the difficulty of predicting the husband's income, depending on which assets he chose to sell.  She had treated the case as one in which the award should not be determined by needs alone, but as one to which the sharing principle applied.  The precise weight to be given to non-matrimonial property brought into the marriage or inherited was a matter for the judge's discretion.  The judge's division of assets had not failed to give due regard to their source.

• The orders for payment of school fees and periodical payments for the wife and the children could not be criticised.  The Judge had been entitled to assess as she had the contribution that W's new partner ought to have made; any error in her approach had been overtaken by her conclusion that it was not a needs-only case.

Periodical payments – impact of cohabitation
Grey v Grey [2010] EWHC 1055 (Fam)
(Singer J) 10 May 2010
This case is included as illustrative of the approach to be taken in applications to vary periodical payments following the cohabitation of the recipient.  Following a successful appeal by the husband against the original award (see Grey v Grey [2010] EWCA Civ 1424 the matter was remitted to Singer J to revisit the level of periodical payments to be paid by the husband following the wife's cohabitation.

The parties separated in 2005, after being together for a total of nine years.  During the proceedings the wife denied the husband's allegations that she was cohabiting.  When the husband discovered the wife was pregnant the wife admitted to her new, but permanent, relationship with L.  At first instance, the Judge held that, "the presence of L on W's scene, and indeed the presence of their child, do not in my opinion affect at all the quantum of capital provision with which W should exit this marriage".  The wife was awarded a house and periodical payments of £135,000 p.a. from November 2006 to March 2009 and £125,000 p.a. thereafter.  On appeal, the Court of Appeal held that, although there had been no evidence of financial contribution by L, the question was not "what is he contributing?" but "what should he be contributing?" and remitted the case to Singer J to assess whether or not the level of periodical payments should be reduced.    

The judge concluded that the wife and L had been in a stable and committed relationship since November 2007 (albeit not a full cohabiting relationship as L maintained his own separate property) and that relationship was continuing at the date of the hearing, January 2010.  Accordingly, L ought to have contributing to the wife's household from November 2007. 

The proper course of action was then to adjust H's payments by reference to a fair assessment of L's contribution so as to maintain the standard of living that the court had deemed appropriate in 2009 rather than simply reduce the husband's maintenance obligation to a nominal amount.  Having conducted that assessment (which will inevitably turn on the facts in each case), the Judge concluded that the appropriate amount of contributions from L from November 2007 to the end of 2009 would have been Euros 55,000 (the wife was by then living in Dublin).  The Husband's obligations were reduced by that amount for that period and maintenance was set at Euros 16,000 p.a. moving forwards.