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Ancillary Relief Cases with a Foreign Twist: Practical Considerations

Sarah Lucy Cooper, of Thomas More Chambers, provides some practical hints on handling ancillary relief claims involving foreign assets

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Sarah Lucy Cooper, Thomas More Chambers

This article sets out to provide practitioners with some practical assistance in ancillary relief cases where there is some foreign twist or element involved. It is assumed that issues of jurisdiction have already been resolved and that the case is being pursued in the English courts.

Choice of Law
Once an English court has accepted jurisdiction in an application for ancillary relief under the Matrimonial Causes Act 1973 [after an English divorce] or the Matrimonial and Family Proceedings Act 1984 [after a foreign divorce], the court will apply English law to the dispute, regardless of the nationality of the parties or other connection with another jurisdiction.

This contrasts with the position in many other jurisdictions where an ancillary relief application involving UK nationals would be judged pursuant to English law as a result of which expert evidence as to English law is frequently relied upon.

The European Commission is currently implementing Rome IIII which will come into force on 1st March 2008 and will harmonize the applicable law in ancillary relief cases such that it might be the local law, a law of the parties' choice, or the law of closest connection to the parties or the marriage. However, the UK together with Ireland and Malta has decided not to opt into these provisions. We will therefore be able to look forward to courts from Malmo to Marbella mulling over the dissenting judgments in Miller …..

Is there though a way of getting foreign law in through the back door? This might be particularly relevant in a case where the parties had entered a pre-nuptial settlement abroad; for example in Spain parties can opt upon marriage for a particular property regime which might effectively exclude from consideration assets brought into the marriage.

In the case of Otobo v Otobo [2003] 1 FLR 192 the English Courts took into account in deciding the ancillary relief the likely awards which the parties would have received had they not litigated in England but in Nigeria. Further, in the case of C v C [2004] 2 FLR 1 Mr Justice Wilson stated in relation to a case involving Jersey:
"English law chooses no substantive law other than its own for the despatch of applications for ancillary relief following divorce, even though belatedly it is beginning to recognise the need, in a case with foreign connections for a sideways look at foreign law as part of the discretionary analysis required" [para 36]

See also the cases of A v T (ancillary relief:cultural factors) [2004] EWHC 471 in which the same approach was followed re Iran and Sabbagh v Sabbagh [1985] FLR 29 in which account was taken of Brazilian proceedings.

Two earlier Court of Appeal decisions suggesting that foreign law has no place in English ancillary relief proceedings might not now be considered as good law – Dart v Dart [1996] 2 FLR 286, no consideration given to USA divorce law in Michigan and Thyssen-Bornemisza v Thyssen-Bornemisza [1985] FLR 1069 – no consideration to Swiss divorce law.

Given the current state of the law, is a party now justified in calling expert evidence in relation to foreign law, for example in relation to the enforceability of a pre-nuptial agreement? Can a party claim the costs of doing so? These issues remain unresolved.

Foreign Assets
Finding the assets
Many civil law systems provide very easy and cheap methods of searching national property registers as against the name of the owner rather than the address of the property, without the need for a court order. The search will also often provide details of "price" although very often this may not actually reflect the actual price paid.

Foreign company searches are also possibilities although many systems do not provide the same transparency as in the UK and may be on a regional basis.

Foreign Property
One of the most common situations is the foreign holiday home. At common law all courts have exclusive jurisdiction in relation to land situated within that country - see Dicey 14th Edition Part 5 – Rules 121 and 122. However, this rather blunt rule "the Mozambique rule" is subject to various exceptions, some of which are relevant to ancillary relief.

It is vital to bear in mind when drafting ancillary relief orders that orders in relation to foreign property are to be avoided at all costs as they cannot be enforced against the property itself. The only remedy in relation to enforcement is against a party. Thought should therefore be given to providing for a fallback position in the case of non-compliance.

This was exemplified in the case of Webb v Webb Case C-294/92 [1994] ECR 1-1717 which involved a dispute between a father and son over a flat in France. The flat had been bought in the son's name with funds from the father. The father brought proceedings in the English High Court for a declaration that the son held the land as a trustee and for an order requiring the son to execute various documents. The ECJ held that such orders did not involve rights in rem [ie against the property] within the meaning of Article 16(1) of the 1968 Brussels Convention on jurisdiction and the enforcement of judgements in civil and commercial matters but rather were orders against the son in personam ie as a party. The practical effect of this ruling was that an English court can make orders against parties but which will ultimately affect property situated abroad.

However an order is structured ie by way of undertakings or recitals or otherwise, essentially there are three possible ways of dealing with foreign property:

(i) SALE – there may be a tax liability both in UK and in foreign country if proceeds are brought back into UK. Expert advice will be needed from a local lawyer as to practical requirements of sale – will the parties need to be present or can they provide powers of attorney, how can this be regulated, who will accept the proceeds of sale etc?
(ii) TRANSFER OF TITLE. There is a possibility of UK CGT even in relation to the principal residence if the transfer is more than 3 years after separation or in the tax year following separation/divorce. Clearly if the property is a second home, UK CGT is likely. Many jurisdictions impose a gift tax on transfers between spouses so it may be more appropriate to deal with the issue as a sale to avoid local tax.
(iii) RETENTION – expert advice should be taken as to the local tax consequences of parties continuing to own property in joint names when they are no longer married. If the intention is for the parties to hold property on trust for themselves jointly, concepts of trust may not be recognised locally and so other documentation may be needed. Forced heirship and taxation on death need to be considered, as in civil jurisdictions including Spain, the remaining ex spouse can find themselves evicted upon the death of the other.

Worldwide Freezing Orders ("WFO")
Once the assets have been identified, they may need to be protected from dissipation. There are two options for such injunctions over foreign property – s37 MCA 1973 or a freezing order under the inherent jurisdiction of the court.

Section 37 MCA 1973
S 37 has the advantage of simplicity as no undertaking as to damages is needed. However, s37 is limited to dispositions that a party has or is about to make and a guilty intention must be shown. See also FPR 2.68

There is no difficulty using s37 over foreign property as it is unrestricted as to locus – see Hamlin v Hamlin [1986] Fam 11 in which properties in Spain were subject to an order. See also Bheekhun v Williams [1999] 2 FLR 229.

Once again, the injunction is in personam ie against a person [normally a party] and not in rem ie against the property itself. This is merely a reflection of the fact that English courts recognise that they have no jurisdiction as against foreign property, but will not hesitate to make an order as against a party who will be amenable to the court's coercive powers …..!

A court will naturally refuse to make an order if it can be shown that any injunction would be ineffectual – expert evidence might therefore be necessary when dealing with countries outside the EU. Care needs to be taken that local land taxes would not be incurred when an injunction or caution is lifted from the property.

Inherent Jurisdiction
Freezing orders can be sought both in the High Court and also the County Court by virtue of County Court Remedies Regulations 1991. See also CPR part 25 setting out the very detailed provisions of draft applications and orders in relation to foreign assets.

The downside of a freezing injunction is that in relation to undertaking as to damages, the client may be called upon to meet the costs of a foreign bank in seeking advice as to the terms and effects of the order and in monitoring movements on the account. If foreign institutions control other financial instruments such as ISAs, PEPs, life assurance policies, they may also be entitled to take specialist legal advice and pass on the costs ….Furthermore, some foreign banks charge for "policing" the injunction.

The recent case of Dadourian Group v Simms [2006] EWCA Civ 399 sets out the eight guidelines that need to be fulfilled when considering whether to enforce an injunction over foreign property:

(i) is the grant of permission just and convenient? Would it be oppressive to any party?
(ii) Should relief be granted on terms? eg as to costs of third parties?
(iii) What is the proper balance between the interests of all affected?
(iv) Is this merely the prelude to the applicant seeking more extensive relief abroad?
(v) What is before the court, including evidence of the law and practice in the foreign jurisdiction?
(vi) Is there a real prospect that assets will be found?
(vii) Is there a risk they will be dissipated?
(viii) Has the respondent been notified of the application?

Foreign evidence
A witness outside jurisdiction cannot be compelled to attend substantive hearing as has been made clear during the Princess Diana Inquest in which foreign journalists have declined to come to the UK.

There are, however, four ways of obtaining evidence depending upon the particular country and the Conventions entered into - see Charman v Charman [2005] EWCA 1606 for a review of orders available:

(i) appointment of special examiner – by summons to High Court. Consul of requesting country appointed as special examiner to take evidence, can invite witness to produce documents
(ii) issue of letters of request – by summons to High Court. Foreign judiciary is requested [NB not ordered!] to assist and compel attendance of witness for purpose of giving evidence and being cross examined. NB High Court can also issue a letter of request requesting production of documents which could have been subject to a subpoena duces tecum if in England. High Court unlikely to issue letter of request unless indication that foreign court would be receptive to such an "invitation" eg Zakay v Zakay [1998] 3 FCR 35 letter of request from PRFD to Gibraltar upheld
(iii) EU member states – evidence can be obtained under the EU Council Regulation on cooperation between the courts of the member states in the taking of evidence in civil and commercial matters [1206/2001] which includes family matters
(iv) Video link – RCJ Court 38, the Law Society and the Bar Council all have good facilities – see also Practice Direction (Video Conferencing: procedure) 14th January 2002 [2002] 1 FLR 699. An order approving such a course must be obtained prior to the hearing. Furthermore, solicitors are responsible for ensuring that any technical link is functioning prior to the hearing – see Judge's comments in the case of K v K [2005] 2 FLR 1137 where a video link with Cuba had not been tested and did not work….

In conclusion, given the soaring numbers of international couples and parties with second homes abroad, all practitioners need to be able to cope with the practical demands of an international twist to their cases.

Useful Sources of Information

Sarah Lucy Cooper
Thomas More Chambers
Vice Chairman British Spanish Law Association