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Finance and Divorce December 2013 Update

Jessica Craigs, senior solicitor and David Salter, Joint Head of Family Law at Mills & Reeve LLP analyse the financial remedies and divorce news and cases published in November.

Jessica Craigs, senior solicitor, and David Salter of Mills and Reeve LLP

As usual, this month's update is divided into two parts:

1. News in brief
2. Case law update

News in brief
This section of the update highlights some of the news items that will be of particular interest to practitioners who advise on divorce and financial remedy cases.

'Quickie divorces' for Italian couples
The Telegraph reports that the President of the Family Division,  Sir James Munby has been asked to cancel 180 divorces after being told the UK courts have been exploited in a massive fraud by Italians seeking a quick end to their marriages.

British residency has allegedly been 'faked' so that the UK justice system can be used to divorce.

The alleged fraud was spotted when court officials realised that in 179 cases the address was the same.

For the full article click here

Norway states 'date nights' key to good marriage
Norway's ruling Populist party is promoting date nights as a cure for flagging marriages in an attempt to reduce the country's divorce rate.  It should be noted that date nights are not planned to be mandatory.

Divorce rates are 40% with 40 – 44 year olds being the  most likely to separate.

For the full article click here.

Publicly funded mediations decline by a third
Compared to the same period last year, the number of separated couples undergoing publicly funded mediation has dropped by almost a third.

The information supplied to showed an even greater reduction in July during which the number of mediations fell by 43% compared with last year.

For more information, click here.

Father committed for contempt for breach of order to file Form E
In Ball v Shepstone [2013] EWCC 6 (Fam), Mr Shepstone failed to appear at the committal hearing.  HHJ Everall QC found him guilty of contempt of court by failing to comply with the order and committed him to prison for 14 days.  The order was suspended to permit Mr Shepstone to serve the Form E in the interim.  It is not known whether he has done so.

Standardised Financial Remedy orders out for consultation
A significant number of standard template orders for financial remedy have been released for consultation.

The orders have been drafted by a team led by Mr Justice Mostyn.  The first release includes a financial remedy 'omnibus' which is, in essence, a consent order with 87 clauses containing as many permutations as the authors could think of.

Use of the final versions is expected to be mandatory from April 2014.

For the first batch of the proposed standard form orders  click here

Resolution reports on the "worrying lack of awareness" about divorce process
Publication of new polling results showed a worrying lack of awareness about a wide variety of non-court based solutions.

Reportedly, there is 'patchy understanding' and 'ill-founded scepticism' about alternatives to going to court during break-ups.

For the full report click here.

Case law update

M v M [2013] EWJC 3372 (Fam)
Application by wife for indemnity costs following findings amounting to serious litigation misconduct by the husband's respondent companies.  Applications granted.

An application by Mrs M following judgment handed down on 2 August 2013 in relation to her Part III (Matrimonial and Family Proceedings Act 1984) application.  Mr M neither attended the trial nor the costs hearing.

In addition to Mr M, there were five other respondents.

The trial was heard in the High Court between 24 January 2013 and 1 February 2013.  Judgment was reserved pending the Supreme Court delivering their judgments in Prest.  In January 2013, Mr M and the companies were put on notice that Mrs M intended to seek indemnity costs at the conclusion of the trial. 

At the final hearing, the court made a number of findings amounting to serious litigation misconduct on the part of both Mr M and the companies.

Mrs Justice Eleanor King DBE concluded (at paragraph 10) that FPR 2010, Part 28.3 and PD 28A applied as these were 'financial remedy proceedings' – the definition of which includes applications under Part III of the 1984 Act.  The general rule in financial remedy proceedings is that the court will make 'no order' as to costs.  The court may make a costs order where:

"it considered is appropriate to do so because of the conduct of a party in relation to the proceedings (whether before or during them)" (Part 28.3(6))

Mrs Justice King concluded that both Mr M and the companies' conduct was such that making an order for costs against both was inevitable.

When assessing on the indemnity basis, the court has regard to all the circumstances in deciding whether costs were (i) unreasonably incurred; or (ii) unreasonable in amount (CPR 44.4(2)).

Mrs M cited a number of points from the case which were "out of the norm" in a way to justify an order for indemnity costs.  In particular:

• The failure of both Mr M and the companies to make full and frank disclosure and engage in proceedings;

• Their lack of respect for the authority of the court;

• Mr M and the companies' breach of court orders;

• The companies' late involvement in the case;

• Mr M and the companies' failure to file statements or to call witnesses in support of their case;

• The companies' running their case in the face of 'blindingly obvious' evidence supporting Mrs M's case; and

• The finding that Mr M had forged Mrs M's signature on two occasions.

Mrs Justice King at paragraph 33 states:

"This is, in my judgement, a case, if ever there was one, where an order for indemnity costs is the correct order.  Litigation conduct of the type exhibited by the Husband and, at his direction, the Companies, is of the most extreme type and thankfully not often seen.'

She ordered Mrs M's costs to be paid in full.

Tchenquiz-Imerman v Vivian Saul Imerman [2013] EWHC 3627 
During the course of contested financial remedy proceedings, adult beneficiaries were joined as parties on their application.  Mr Justice Moylan ordered that the beneficiaries, as parties, should disclose copies of documents which had been provided to them for the purpose of an application which had been made to the Royal Court of Jersey by the trustee of some of those trusts.  The Royal Court had given the beneficiaries permission to make such disclosure if they were ordered to do so by the English court.  But, they expressed a number of reservations and invited the court not to make such disclosure.

The parties were married in 2001 and separated in 2008.  They had one child.  The husband had three adult children from his first marriage who were the beneficiaries joined to the proceedings.

The husband's wealth consisted of approximately £7m in his own name and approximately £20m of assets held within a nuptial settlement of which the husband was the principal beneficiary.

Two of the key issues in the financial remedy proceedings were: (a) whether the Trusts were nuptial settlements for the purpose of s24 Matrimonial Causes Act 1973 and (b) whether the assets of the Trusts were financial resources available to the husband (s25(2)(a) of the MCA 1973).

The trustees were joined as parties but none participated in the proceedings following applications to their respective national courts.  The Jersey trustee applied to the Royal Court for approval of its decision (a) not to submit to the jurisdiction of the English court and (b) to disclose information about the Trusts' assets to the husband's father in the knowledge that he was likely to disclose it to the husband.  These decisions were approved by the court on 15 July 2011.

The trustees provided some information about the Trusts but declined to provide a considerable part of the information and documents sought by the wife.  The wife submitted that the courts must examine this inference and look at all the circumstances.

The Royal Court gave permission for information and documents to be disclosed by the beneficiaries in this case, if, the English court made an order to that effect.  It was made clear that, normally, the court would have refused permission but for the "very unusual circumstances" of this case.

Although permission was given the Jersey court asked the Family Division to consider very carefully whether it needed to make any order that the adult beneficiaries disclose material in relation to the July proceedings.  They categorised the material into: privileged, sensitive and "other".  Permission for the privileged material to be disclosed was not given.

Sensitive material was specifically referred to:

"[33]…However, we hope very much that the Family Division will respect the nature of the July proceedings and not order disclosure of the sensitive material."

Mr Justice Moylan confirmed at paragraph 23 that, "I therefore need to explain why I considered it necessary to order disclosure of both the sensitive and the other material despite the Royal Court's expressed wish that I should not do so."  He then carries out a brief revision of the relevant cases relating to trusts and the treatment of them in financial remedy proceedings.

At paragraph 44, the judge concludes that the importance of seeking to understand how and why the trustee was likely to exercise its powers was of 'pivotal importance'.  The critical paragraph is at paragraph 45 as follows:

"However, in my judgment, any light on the internal thinking of the trustee would be significantly preferable to none….This extends to why the trustee did not consider it to be in the interests of the beneficiaries for the trustee actively to challenge the wife's claims within these proceedings, either as a party or as a witness, when those claims are said to be, factually, wholly without merit and when the Trusts hold significant wealth within this jurisdiction….I remain puzzled as to why such a trustee should not consider it in the interests of the beneficiaries to provide the evidence which will rebut a case if the trustee has the evidence available to it…If it does not, as referred to above, the English court will be left to draw inferences and make assumptions."

Accordingly, the adult beneficiaries were ordered to disclose the material considered necessary and proportionate to assist the court in determining the issues raised in those proceedings.

Duncan v Duncan [2013] EWCA Civ 1407
Appeal by wife against an order setting aside an order in financial remedy proceedings on the basis of counsel's conflict of interest.  Appeal allowed, order set aside and original order restored.

On 19 April 2011, District Judge Morgan MBE made an order in an FDR hearing.  On 12 November 2012 this was successfully appealed by Mr Duncan, having identified a procedural irregularity.

The issues in the second appeal related to the involvement of counsel who had previously been involved in FDR proceedings on behalf of the husband in relation to his first marriage, five years earlier.

On the day prior to the hearing, counsel alerted his solicitors that he had previously represented the husband.  The husband's solicitors were informed and the husband consented to him doing so.

On appeal, the judge (Her Honour Judge Moir) described the husband's position on the morning of the hearing as invidious.  He was faced with the prospect of delay and lacked "understanding or appreciation as to what he was consenting".

At paragraph 16 Lady Justice Macur points to the relevant facts of this appeal:

1)  Counsel for the "second wife"  had previously appeared for husband in a different financial dispute five years earlier;

2) The assets in the second financial dispute involved assets subject to dispute in the first case;

3) When he was made aware of it, counsel for the second wife  made immediate disclosure of his previous association with the husband;

4) The husband was represented by counsel in the second case

5) Counsel for the husband in the second case gave an unequivocal assurance to the Court that the husband consented to the case proceeding before District Judge Morgan.  The husband did not dispute the fact that he  had given his consent;

6) No objections were raised during the hearing that cross examination of the husband was unfair or unfounded upon the evidence filed in the second case.

7) Apparently, no objection was raised in the two months between conclusion of the hearing or the handing down of the judgment and was only notified one month later;

8) The husband was patently aggrieved as to the outcome.

At paragraph 17, the judge revisits counsel's professional obligations with reference to the Bar Code of Conduct.

The case concludes that the husband's appeal was 'patently opportunistic'. The wife's appeal was allowed and the order of District Judge Morgan restored.

G v B [2013] EWHC 3414
Financial remedy application brought by the wife.

The parties met in 1999 and in 2000 the wife moved to London.  They were married in February 2004 and in March 2004, their son was born.  Later that year, the parties moved to a 3 bedroom penthouse at a rent of £1,400 per week.

The husband at the date of trial was aged 62 and the wife was 46. 

A feature of the case was the fact the husband was an only child and had a very close relationship with his father.  He was entirely dependant on his father financially, and his father was a successful business man who lived his last 25 years in Monte Carlo.

With the husband's father's support, the couple were able to enjoy a very good standard of living.

By 2004, the husband's father was very unwell and he subsequently died in January 2005.  Over the period 2004 – 2005 a Liechtenstein foundation was formed and the father's assets were transferred into it.  The husband fully acknowledged during the course of proceedings that the assets of the foundation were financial resources within the meaning of MCA s25(2)(a).

The wife accused the husband of failing to disclose the extent of his assets.  Her case was that he had undisclosed assets of between £1.5 to £2.5m.

At paragraph 31 Mr Justice Blair categorises the husband's 'failure' of disclosure but concludes (at paragraph 32):

"Without excusing any non-disclosure, I do not think that the disclosure history in itself tends to the conclusion that there are further assets which have still not been disclosed."

After a careful summary of each of the relevant categories under s25 MCA the judge concludes (at paragraph 61) that the total net assets were between approximately £6.1m - £6.6m.

Needs was a "magnetic factor" of the case and that appeared to be agreed. The judge performed a careful examination of both parties' housing needs and standards of living.

However, the derivation of the assets was important and the wife did not reflect this in her proposal.  The husband's position was that for the court to fix the wife's award at such a level so as to deplete the resources of the foundation to an extent which deprived the other beneficiaries, was wrong.

At paragraph 81, Mr Justice Blair comments: "It is submitted that assessment of need is not an insulated metric, and the presence of pre-marital property may lead to a more conservative assessment of need….

[82]  …I consider that the derivation of the funds is a factor to be given some but not great weight.  However, I consider that achieving an outcome that is fair to both parties, recognition has to be given to the position of the other grandchildren as beneficiaries of the foundation."

An order of £1.6m was made in favour of the wife with global periodical payments of £65,000 per annum on a joint lives basis.

Young v Young [2013] EWHC 3637
An application for a full range of financial remedies brought by the wife after six years of litigation "conducted in the full glare of the media" [2].

The parties met in 1988 and began to cohabit in 1989.  Their two daughters were born in 1992 and 1994 and in 1995 the parties married.  The marriage broke down in 2006 and therefore was of "significant length" numbering 17 years it total [26].

The husband at the date of trial was aged 51 and the wife was 49.

The husband was a self-professed entrepreneur and had generated extreme wealth through his multiple business endeavours.  The wife, whilst possessing experience in the fashion industry prior to the marriage, had devoted herself to the roles of mother and homemaker.  Moor J found that the parties had started with nothing but had come to enjoy an extremely high standard of living (although found to be overly-exaggerated by the wife).

Both parties were found to have made equal contributions to the marriage.  Thus, any assets found would be treated as generated during the marriage and be equally divided between the parties.

The wife sought an order for a lump sum, pursuant to section 23(1)(c) MCA 1973.

A key feature of the case was that the husband suffered a financial meltdown of his business empire in 2006.  H asserted that his "business implosion had left him nothing but debts to HMRC, the Bank of Scotland and his business friends and colleagues" [59].

The wife contended that the Husband had manufactured the financial meltdown to allow him to extract as many assets as possible to hide from her reach.  Her case was that her husband had failed to disclose assets he retained control of from 2006, totalling hundreds of millions of pounds. 

The husband had failed to provide full and frank disclosure and consequently he had been imprisoned for 6 months in 2013 for contempt of court.

At paragraph 19, Moor J reinforced the obligation of full and frank financial disclosure on the parties.  At paragraph 20 he said that where there have been shortcomings in disclosure, thus allowing the court to draw appropriate inferences, "it is up to the respondent to open the cupboard door and show that the cupboard is bare".

The wife's needs of £5 million for housing in central London, £500,000 for refurbishment and £2 million for a holiday property were not deemed to be unreasonable given the standard of living enjoyed.  Maintenance of over £350,000 per annum was said to be more than sufficient [110].  Referring to the appropriate Duxbury formula for capitalisation, a lump sum of £9.4 million would meet the wife's needs.

The court found in relation to the husband's undisclosed wealth that, whilst his current financial value could not be accurately estimated, he had retained control over large assets in 2006 – notably that he had extracted £20 million in share certificates from his solicitor, Mr Beller (which consequently resulted in Mr. Beller being struck off the roll of solicitors for non-compliance with undertakings given to the husband's creditors) [177].  Moreover, Moor J found that the husband had to date £45 million hidden from the court which after a deduction of £5 million for his debts would leave a net total of £40 million to be shared between the parties [178].

At paragraph 179, Moor J stated that a lump sum of £20 million met the wife's reasonable needs generously assessed and so nothing more would be awarded.

Throughout his judgment, Moor J brought the conduct of the parties into question; the husband's failure to comply with court orders and the wife's tendency to "[see] conspiracy everywhere", leading her to raise "issues completely unfounded" [100] and [185].  Consequently, Moor J summarily assessed costs and awarded the wife her costs on an indemnity basis of what he considered should have been the cost had the litigation been properly conducted.

Moor J gave direction as to how the court will deal with such cases that present "truly eye- watering" amounts spent [5].  He said at paragraph 11:

"I am quite sure that in cases such as this, there should be rigorous control on the amount spent, in particular, on expert evidence… If the solicitors and the clients are not willing or able to do so, the court will have to impose limits. Without such restraints, litigation funding will be put off supporting these cases"