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Finance and Divorce Update June 2015

Rebecca Lang, Associate, of Mills & Reeve LLP analyses the financial remedies and divorce news and cases from May 2015.

Rebecca Lang, Associate, Mills & Reeve LLP

Rebecca Lang, Associate, Mills & Reeve LLP

This update is provided in two parts:

  1. News in brief
  2. Case law update

News update

Supreme Court puts recordings of past cases online
From 5 May 2015, recordings of Supreme Court hearings have been made available online. Until then, it had broadcast only live hearings. The video-on-demand service is intended to make an archive of cases available for up to a year. It will cover not only Supreme Court hearings but also those in the judicial committee of the Privy Council (JCPC), which sits in the same Westminster building and hears appeals from some Commonwealth countries, British overseas territories and crown dependencies.

In addition to providing a legal resource, it is hoped that the initiative will reduce legal costs as transcripts will not need to be produced as frequently.

The archive of hearings can be accessed from the Decided Cases or Current Cases section, as appropriate.

Divorcees with pension earmarking orders may need to act to protect benefits
Wealth management company Old Mutual Wealth has reported that people with the benefit of pension earmarking orders may need to take action to protect their benefits as a result of the new pension freedoms. Before pension sharing orders were available, people may have set up pension earmarking orders. If the earmarking order provided for the non-member to be paid a fixed percentage of the member's pension income, the non-member should check that their benefits are protected if the member withdraws their pension as cash rather than taking an income. It is recommended that non-members seek advice as to whether it will be possible to make an application to amend the order.

For more information, please click here.

Mediation survey carried out by Resolution
A survey has been carried out by Resolution in relation to mediation. The survey has found that only a small proportion of mediations lead to a settlement. Further, MIAMs are not always effective and nearly two-thirds (60 per cent) of respondents said that less than a quarter of cases in which a MIAM had taken place proceeded to mediation. Whilst more people are obtaining information about mediation as a result of the compulsory MIAM, the conversion rate is lower than might have been hoped.

More than half of the respondents reported that less than a quarter of the cases that proceeded to mediation after a MIAM resulted in a settlement. Jo Edwards, Chair of Resolution, said Resolution believed this was the case because the MIAM comes too late in the process. Resolution's Manifesto for Family Law argues that information sessions should come earlier in the separation process, before the case has reached court, to give mediation or alternative methods of resolution a better chance of success.

Case law update

P v P [2015] EWCA Civ 447
Here, we have an appeal brought by the trustees of a post-nuptial settlement to vary that settlement by way of ancillary relief following a divorce between the spouses.  H and W were the respondents in the appeal.  Appeal dismissed by Black LJ (leading judgment), Jackson LJ and Sir David Keene.

H and W met in 1999 and eventually separated in 2012.  They were in their mid-forties, and had one child, who shared his time between them.  H's family were very wealthy.  They were noted as owning property and running family businesses. 

The original financial remedy proceedings came before Mostyn J. He found the parties' assets/income to be as follows:

The asset in dispute
H's family established a settlement in 2009.  The settlors were H's father and mother.  H's father was one of the trustees.  The trust assets comprised a farmhouse originally belonging to H's side of the family.  The beneficiaries were the settlors' three children, their remoter issue and anyone added under the power at clause 3 of the trust instrument.  The trust provided that the trustees were given power to appoint the whole or any part of the capital and income of the trust fund on trust for all or any of the discretionary beneficiaries in such shares as they might appoint in accordance with the rules of appointment which were set out in the trust deed.  H was the principal beneficiary and it was stated that "the making of any land or building comprised within the Trust Fund available for occupation by the principal beneficiary shall be the purpose of the trust."  There were broad powers of appointment for the trustees to apply the funds for maintenance, education or the benefit of one or more of the discretionary beneficiaries.  At the expiration of the trust period, the capital and income was to be held on trust for H's brother, his children and remoter issue.

The parties moved into the farmhouse in 2005 and remained there until their separation in 2012.  W did not know of the trust until after the marriage, but knew the property was not owned by her and H and that it would revert to the family estate once they finished living in it. At the time of the hearing, W was dividing her time between the farmhouse and her parents' home, and H was living with his new partner, their adopted child and a child of their relationship in a property owned by his family.  H's wish was to return to live in the farmhouse.  The agreed value of the farmhouse was £314,000.

Mostyn J found that the trust was a nuptial settlement capable of variation under section 24(1)(c) of the Matrimonial Causes Act 1973.  In doing so, he relied upon a letter written by the settlor to his bank in December 2007 in which he referred to making provision for "our younger son….and his wife."  He found the court's powers extended to the whole trust and not just H's right to occupy.  He stated that "the intention of the settlor and the knowledge of the parties that ultimately the value of the settlement would revert to the estate must be given heavy respect."  This had to be balanced against the special treatment to be afforded to the matrimonial home (per Lord Nicholls in Miller v Miller [2006] UKHL 24, [2006] 2 AC 618.

The order of Mostyn J was as follows:

- £23,000 absolutely

- £134,000 for her benefit for life, to be held by independent trustees with W entitled to use the capital sum for or towards the purchase of a property for her occupation and having the benefit of the income during her lifetime.  (The order also provided that H could satisfy the order from assets outside the trust fund if, for example, his family were inclined to assist.) 

Mostyn J considered this to reflect fairly all the circumstances of the case, in particular the nature of the trust and W's potential to settle with a new partner.  What he ordered fell short of what she said she needed but, given her relationship, Mostyn J found it to be "sufficient to meet her needs."

The appeal
In summary, the trustees challenged the orders made.  They stated that:

The law
The relevant power is of course to be found in section 24(1) of the MCA 1973.  The parties agreed that the principles on which that power should be exercised are those contained in Ben Hashem v Ali Shayif [2008] EWHC 2380, but differed of course in how they considered the principles should be applied.

In summary, the principles in Ben Hasham (per paras 286 and 299) can be stated as follows:

The appeal was to be rejected for the following reasons:

Separate practice point – per Jackson LJ (paras 68 and 69)
In a separate practice point, clarification was provided in respect of the correct route of appeal from a decision of first instance:

"[I]t is…good practice for any party contemplating an appeal in the first instance to see permission from the lower court.  Ideally the party should do so when the judge delivers or hands down judgment.  This is for the five reasons set out in [CPR] paragraph 52.3.4 of the White Book commentary…..On the other hand there is no longer a rule requiring the appellant to apply to the lower court for permission.  Therefore the need to apply to the court below is no longer a mandatory requirement, merely a matter of good practice."

D v D [2015] EWHC 1393 (Fam)
This case sets out the requirements for a successful non-disclosure claim.

H and W jointly owned an international debt recovery business which H ran. The business earned income by way of success fees (mandates) when debts were recovered. The parties had been married for a long time and there were available assets of £5.5million. This figure did not include £1.53million of outstanding mandates.

W had no specific evidence of non-disclosure by H but asked the court to draw adverse inferences. She argued that H had the opportunity to receive payments in excess of the mandates and that he had twice paid his grandchildren's school fees by remitting funds into the jurisdiction without them being traceable to him.

It was accepted that H had wrongfully tried to avoid tax by paying the school fees in the way he had but W's non-disclosure claim was rejected on the balance of probabilities.

The assets were divided broadly equally between the parties. W retained an inheritance of £265,000 which was treated as non-matrimonial property. Most of the outstanding mandates had been generated during the marriage. It was decided that they should be split 2:1 in H's favour as and when they were received, to reflect H's greater endeavour.

Evidence required for a successful non-disclosure claim
Roberts J summarised the evidence required as follows:

Arbili v Arbili [2015] EWCA Civ 542
Here, we have two appeals arising from financial remedy proceedings conducted by HHJ Horowitz QC.  Appeal one related to the judge's treatment and division of the assets, and whether he had conducted himself appropriately and in accordance with legal principles.  Appeal two related to the procedure adopted by his HHJ Horowitz at a subsequent hearing at which:

Lady Justice Macur DBE gave judgment (Sir Bernard Rix agreed), in which they found HHJ Horowitz's analysis and approach to be appropriate in respect of both appeals, and both appeals were accordingly dismissed. 

H and W commenced their relationship in 2002, married in June 2005 and following separation the decree nisi was pronounced in September 2012.  They had one child, A, born in October 2008.  H was French and worked in the financial sector.  His earning capacity was assessed at approximately £500,000.  W was English and had not worked since A's birth.  She was assessed as having a limited/modest earning capacity until A commenced secondary school.

At first instance, the judge found the matrimonial assets to have a value in the region of £1,066,000 (excluding a small pension pot of H's).  The division of assets was as to 54% to W on a needs basis.  The judgment provided for W to receive:

H was awarded:

Subsequently, H sought to set aside the order on the basis of information illegally obtained from the W's computer account, and his application was dismissed (appeal 2). H would not volunteer (with anything like sufficient detail) how he had accessed the information. 

Appeal one
H brought an appeal arguing that the division of the assets constituted an excessive departure from equality, in particular because the judge's award to W comprised almost the entirety of immediately available or realisable funds.  In particular, he argued that the judge distinguished, without justification, between the two French properties in which H's and W's parents respectively resided.  H's parents were living in Villa 15 (bought by H 15 months before the parties met), and HHJ Horowitz adjudged this property as matrimonial in nature.  In contrast, and H argued unfairly, he found the property belonging to W's parents in which she would ultimately have a significant interest to be non-matrimonial in nature.

Having considered the grounds of appeal, Lady Justice Macur DBE was quite clear that:

She did concede that she did not "discern a legitimate and fair reason to adopt a different approach to the properties."  However, this was immaterial to the outcome because she found the judge to have reasoned the departure from equality in W's favour appropriately given that his analysis was firmly rooted in "needs".

Appeal two
The second aspect related to information H had obtained, which he stated would demonstrate that W and her family had intended her to benefit from her share in the French parental home much sooner than she had presented to the court in evidence.  Macur LJ concluded, without hesitation, that H had not made out his case and had not provided sufficient information about how he came to obtain the information upon which he was seeking permission to rely. 

Macur LJ referred to the correct approach as set out in the case of Imerman v Tchenguiz and others [2010] EWCA Civ 908:

She made specific reference to paragraph 177, in Imerman, as follows:

" ancillary relief proceedings, while the court can admit such evidence, it has power to exclude it if unlawfully obtained, including power to exclude documents whose existence has only been established by unlawful means. In exercising that power, the court will be guided by what is 'necessary for disposing fairly of the application for ancillary relief or for saving costs', and will take into account the importance of the evidence, 'the conduct of the parties', and any other relevant factors, including the normal case management aspects. Ultimately, this requires the court to carry out a balancing exercise..."

She was clear that each application is "fact specific" and that in the circumstances of this case, HHJ Horowitz was entitled to bring to a halt H's attempts to appeal on these grounds.  She referred to H's conduct (unclear and not candid), W's response to his allegations (corroborated disclosure), the minimal relevance to a needs case and the cost and delay brought about by the appeal as being reasons why the judge was entitled to find against H.

G v G [2015] EWHC 1512 (Fam)
This case concerns two applications made by a former wife in financial remedy proceedings. W sought:

  1. an order preventing H's legal team (leading counsel, junior counsel and solicitors) from continuing to act for him at a hearing in July 2015; and 
  2. redaction of part of H's evidence and an injunction to prevent him from relying upon the use in that hearing of material in respect of which she claims Legal Advice Privilege.

W had been represented by Mr Martin Pointer QC and Mr Simon Webster. H had been represented by Mr Andrew Green QC, Mr Tom Hickman and Mr Richard Sear. Mr Sear is junior counsel in the ongoing matrimonial proceedings. He had until shortly before this hearing been led by Miss Deborah Bangay QC (DBQC).

H and W married in 1996 after lengthy cohabitation. They had three children during the course of their 22 year relationship. Divorce proceedings were issued in 2009 and the parties agreed financial issues. A consent order was approved on 1 June 2010. W received a comprehensive financial award on the basis of a clean break. At that time, the total wealth available for distribution was said to be in the region of £15.7million and W received just under half of that amount.

On 23 July 2014, W sought permission to appeal out of time and alleged material non-disclosure by H in 2010. She claimed not to know until May 2014 that H (rather than the children) was the primary beneficiary of two family trusts. H denies the allegations. He also said that W failed to act promptly in bringing her appeal. The reason for this is an email which suggests that she was, or may have been, alive to potential issues of non-disclosure in September 2012.

The issue in this hearing was whether the contents of an email dated 20 September 2012 sent by DBQC to Julian Ribet, a partner with Levison Meltzer Pigott LLP, were confidential and/or privileged. W's case is that the contents were, and remain, privileged and the court can and should prevent the use of the material at the forthcoming appeal hearing and require H's entire legal team (who were privy to that information) to withdraw from the case. H said no such privilege existed and he was entitled to use the email and its contents at the hearing in July 2015.

The email of September 2012
In summary, in September 2012, W spoke to a friend (DS) who knew H and some details of his business affairs. DS in turn spoke to her friend who knew DBQC and described her as 'a top family lawyer'. W agreed to DS contacting DBQC. They had a short conversation discussing "sensitive and private matters" about W and her family. There was a discussion about DBQC representing W but she did not accept instructions on a direct access basis and so she recommended that W saw Mr Ribet. DS understood that this was on the basis that Mr Ribet could instruct DBQC on her behalf. DS passed this information on to W and her involvement then came to an end. DBQC emailed Mr Ribet to notify him that W may contact him regarding non-performance of a consent order and "?poss non-disclosure". W acknowledged that she took advice from Mr Ribet's firm in late 2012 but did not waive privilege in respect of that advice.

Events of July 2014
W issued appeal proceedings in July 2014. H's original solicitors considered themselves conflicted as a representative of the firm may be required to give evidence in relation to the non-disclosure. Prior to their withdrawal and by coincidence, DBQC and Mr Sear had been instructed to advise H in consultation. DBQC accepted instructions to act for H, in apparent ignorance of the fact that she had previously been approached by DS on W's behalf. When H's solicitors withdrew, DBQC suggested that Mr Ribet's firm might act and the name of another partner was put forward. Mr Ribet emailed DBQC to remind her that she had introduced W to the firm and they were conflicted. DBQC therefore searched her historical emails and discovered her email to Mr Ribet of 20 September 2012.

There were three key questions which arose in the judgment:

1. "Does the conversation between W and DS prior to her making contact with DBQC attract legal professional privilege and specifically legal advice privilege? Was W, in the context of her conversation(s) with DS, giving instructions, or authorising her friend, to seek from DBQC (i) a recommendation for a lawyer; and/or (ii) legal advice generally and/or in relation to the way forward in terms of any potential claim she might be advised to bring? If so, was W's conversation with DS and the 'number of matters discussed' to form the description of the case or set of facts from the basis of which DBQC was being asked to advise?"

Mrs Justice Roberts held that there was no evidential basis for finding that there was ever a request or authorisation made or given by W to DS to seek legal advice from DBQC. It was "clear that DBQC explained to DS during their short conversation that she could not accept instructions directly from W and could therefore not give advice".

Mrs Justice Roberts reached the clear conclusion that "the conversation(s) between DS and DBQC cannot on any view be said to attract the protection of legal professional privilege and specifically legal advice privilege. These were simply conversations between friends. W accepted her friend's offer to speak to this lawyer with a view, as I find, to securing a recommendation as to whom she might go to for professional advice. I can find no basis whatsoever for a finding that she specifically authorised her friend to secure that advice from DBQC  on her behalf". 

2. "Does the (admittedly, short) conversation between DS and DBQC on 19/20 September 2012 attract legal professional privilege?"

Following on from the comments above, Mrs Justice Roberts' conclusion was that "the approach made by DS to DBQC was directed towards securing assistance for W in terms of a recommendation as to who might assist her friend to take these matters forward". DBQC made it clear that she could not accept W's instructions (and in Mrs Justice Roberts' view, give advice) other than through formal instructions from a solicitor. Mrs Justice Roberts referred to paragraph 1.51 of The Law of Privilege (2nd edition) edited by Bankim Thanki QC which states:

"if you ask your lawyer for advice about your love life, this will clearly not be privileged. But even if he is consulted about the law, privilege will not arise if a lawyer is consulted on a social rather than a professional basis. Whilst a formal retainer is not necessary, there are limits. Buttonholing your lawyer neighbour for free advice at a barbeque is unlikely to attract privilege, even if the subject matter is entirely legal…. The fact that an individual happens to be a lawyer will not cloak all communications with him with privilege unless he is consulted professionally in his capacity as a lawyer".

Mrs Justice Roberts concluded that "at no stage of the timeline was there a formal relationship between DBQC and DS (as agent for W) and/or between DBQC and W of professional advisor.

3. "Is this a case where injunctive relief should be granted to restrain the use of either confidential or privileged material?"

Mrs Justice Roberts did not find "that W was entitled to an injunction based upon privilege to restrain either the use of the email on the appeal or the continuing ability of H's presently constituted legal team to represent him on that occasion". She also concluded that "there were no overriding circumstances justifying an injunction based on confidentiality to restrain the information in the email".

This case serves as a useful reminder of decisions about whether information is privileged, being necessarily fact specific and involving consideration of the context in which the alleged privileged information was provided.