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Finance & Divorce Update September 2015

Edward Heaton, Principal Associate and Jane Booth, Associate, both of Mills & Reeve LLP analyse the news and case law relating to financial remedies and divorce during August 2015

Edward Heaton, Principal Associate and Jane Booth, Associate, both of Mills & Reeve LLP 

A. News in brief

Updated Family Procedure Rules and Practice Directions
The Family Procedure Rules 2010 ("FPR") have been updated to include practice and procedure to be followed in applications for female genital mutilation protection orders. Minor amendments have also, however, been made to Practice Directions 3A (Mediation Information and Assessment Meetings), 4A (striking out a statement of case) and 30A (appeals).

Amendments to the Practice Directions:

• 3A: The introduction of an additional form of evidence to prove a Mediation Information and Assessment Meeting exemption based on domestic violence.

• 4A: Following the Supreme Court judgment in Wyatt v Vince [2015] UKSC 14, paragraph 2.4 will be deleted.  The paragraph provided for a strike out application on the basis that a case has no real prospects of success.

• 30A: Following the decision in CS v ACS and another [2015] EWHC 1005 (Fam), the final sentence of paragraph 14.1, providing that an appeal is the only way to challenge a consent order, will be deleted.

Mediation service sees calls to its helpline double in past year
National Family Mediation ("NFM") have seen the number of calls to their telephone helpline more than double in the past year.  The helpline has taken an average of 3,400 calls every month since the start of the year, up from 1,600 calls every month during the same period in 2014.

Jane Robey, CEO of National Family Mediation, referred to the fact that this might be a sign that "the government's policy, to divert people away from the legal process to mediate instead, is actually beginning to work. Couples are increasingly self-researching their options, and this is reflected in the huge increase in calls to dispute resolution specialists on our telephone helpline".

Rome III Regulation now applicable in Greece
As of 29 July 2015, Greece will become the 16th member state to adopt the Rome III Regulation.  This Regulation (officially 'Regulation 1259/2010' but also sometimes known as the EU Divorce Pact) implements enhanced cooperation in the area of the law applicable to divorce and legal separation, and provides a means to give effect to the parties' choice of the law which will govern their divorce and legal separation. 

The first 15 member states to adopt the Regulation were Austria, Bulgaria, Germany, Italy, Lithuania, Malta, Romania, Spain, Belgium, France, Hungary, Latvia, Luxembourg, Portugal and Slovenia.  (The UK has not adopted the Regulation.)

Updated Form D190: guidance on applying for a financial order
HMCTS has published an updated version of Form D190, the advice sheet for litigants in person wishing to apply for a financial order.  The advice is five pages long and outlines the procedure for financial remedy applications including discussions about Family mediation and costs.

For the form click here

The FLBA responds to the Law Commission Consultation on Enforcement of Family Financial Orders
The Family Law Bar Association, which has 1,800 full members and represents self-employed and employed barristers, has responded to the Law Commission Consultation on Enforcement of Family Financial Orders.

In a statement published in October 2010, the FLBA stated that then state of enforcement proceedings was "hopelessly complex and procedurally tortuous".  It  advocated the need for a more "modern, user-friendly and cost effective scheme, in which judges or lay magistrates are able to grant one or more orders selected from a uniform menu of options".

In its response to the Law Commission Consultation, the FLBA stated that whilst "we welcome the vast majority of the reforms proposed, we would still emphasize the need, in our view, to consider:

a) a single unifying piece of legislation dealing exclusively with enforcement as well as

b) a single cohesive set of rules on enforcement within the FPR."

The following "obvious points" are made:

"i. the more difficult and costly orders are to enforce, the less likely parties are to seek enforcement;

ii. difficulty in achieving enforcement itself encourages default, or the threat of default, to negotiate a more favourable settlement;

iii. it undermines the whole financial remedies jurisdiction if orders made are unlikely to be enforceable or disproportionate (too costly) to enforce;

iv. the current law is far too complex, with the need to cross refer between different statutes, the CPR and the FPR."

The response goes on to make suggestions which include the following:

• In order to discourage the practice of seeking a variation only once an enforcement application has been made, a warning notice on financial orders that the obligation to pay continues unless and until varied with any person finding it difficult to pay having to apply to the court for a variation unless they achieve an agreement, in writing, with the payee to vary payments;

• A relaxation of the embargo on second pension sharing orders in relation to the same pension in order to facilitate exercising enforcement mechanisms against pensions given the large proportion of financial remedy orders that involve pension sharing;

• A presumption that the debtor pays the costs where the court makes an enforcement order, unless there is a good reason not to do so;

• A presumption of no order as to costs, if a debtor successfully opposes an enforcement application, unless the creditor has behaved unreasonably;

• Each court centre having a specialist enforcement judge (of at least District Judge level) to hear cases and provide information and guidance to local judiciary on enforcement issues; and

• Judges, who approve a consent order at a Financial Dispute Resolution hearing, being able to hear any subsequent contentious issue arising on enforcement."

B Case law update

WA v Executors of the Estate of HA (deceased) and others [2015] EWHC 2233  (Fam) 

This was an appeal by a former wife ("the wife") against an order made by the by consent in November 2014 ("the consent order").  The parties had married in 1997 and separated in early 2014.

In short, the wife was, as Moor J indicated, "fabulously wealthy", with personal net assets of £27.2m and net assets held in trust with a value of £242m.  The former husband ("the husband") had personal net assets of just over £2m.

Prior to the marriage, the parties had entered into a pre-marital agreement which the judge described as, essentially, a "separation of property agreement", although little attention was subsequently given to the agreement at the time that the husband and wife agreed the settlement that was reflected in the consent order.

During the course of the marriage, an estate was purchased as the family home.  At the time of purchase, it had been in a dilapidated state, but was restored to make a "magnificent home and park" worth in the region of £30m, and the husband's mother lived in a property on the estate.

The consent order provided for the wife to make a payment to the husband of £17.34m which, combined with his personal assets, left him with around £19.5m.  The payment was to be made in two equal tranches, the first within 14 days of the consent order and the second within 14 days of the husband's mother vacating the estate property, which she did in late January 2015.

The husband, however, committed suicide 22 days after the consent order was made.  In his will, he left everything to his three adult brothers and nothing to his children.  In a separate letter to his brothers, he made it clear that they were not to return any money to the wife, the money being "a reward for the pain of recent months".

The wife appealed the consent order, relying on Barder v Calouri [1988] AC 20, on the basis that "the fundamental assumption on which the order was made was that the Husband required the money to meet his own needs which [had] been totally invalidated by his death".  She sought the setting aside of the entirety of the consent order and repayment of the majority of the first tranche that she had paid, the balance of £1.5m to be returned to her once the husband's mother no longer had the need of a property which had been purchased for her so that she could move out of the estate property.

The judge found that:

• The husband's death had only been a "theoretical possibility" and neither foreseen or foreseeable as, whilst there had been concerns over his mental health in the summer of 2014, reports had become "uniformly positive" by September 2014;

• The agreed award to the husband had been needs and not sharing based and was, therefore, "susceptible to being set aside", the husbands' needs claim having prevailed over any sharing claim;

• The award should be reduced to £5m which, whilst quantified on a sharing basis, was not significantly greater than the award would have been on a needs basis (given that approximately £3m would be needed to cover the housing costs of the husband's mother, responsibility for which the parties had taken on, and it would not have been unreasonable for the husband to have the capability to make "modest bequests"); and

• The payment to the husband was reduced from £17.34m to £5m, the requirement to pay the second tranche being set aside and the husband's estate being required to repay to the wife a sum of £3.67m.

CH v Secretary of State for Work and Pensions & Anor (Child support:  maintenance assessments/calculations) [2015] UKUT 381 (AAC)
This case concerned the payment of child support where the child was, at the time of the hearing before the Upper Tribunal, aged 16.  The judgment sets out the relevant law about people employed and earning income abroad, and the effect of the double taxation arrangements.

The mother with care made an application for child support in December 2012. The non-resident father was habitually resident in the UK from 2012 but worked in Belgium and was subject to income tax in Belgium. 

HMRC assessed the father's UK income tax as £Nil as the tax that he was paying in Belgium was higher.  The UK has entered into a double taxation treaty with various countries, including Belgium  (see Article 23(1)(a) of the Convention set out in the Schedule to the Double Taxation Relief (Taxes on Income) (Belgium) Order 1987 (SI 1987/2053). Therefore, the father was not to be taxed to an unfair extent on the same earnings in the UK as he was paying tax on in Belgium.

The Child Support Agency made a £Nil assessment on the basis that the father had no income as he was not paying UK tax.  The mother appealed.  The First Tier Tribunal dismissed the appeal on paper. The mother submitted a further appeal.

The Upper Tribunal determined that the Child Support Agency and the First Tier Tribunal decision were incorrect as, but for the double taxation arrangements, the father would have been liable to tax in the UK and his earnings should, therefore, be taken into account in making an assessment.  The application was referred back to the Child Support Agency for them to re-consider.

Birch v Birch [2015] EWCA Civ 833  
This was an application by the wife under section 31 of the Matrimonial Causes Act 1973 ("MCA 1973") to vary undertakings in a consent order from 2010.

The consent order detailed the agreement between the parties as to the future ownership of certain personal belongings and debts. It also ordered that the husband was to transfer his share of the former matrimonial home to the wife subject to the mortgage.

In the consent order the wife provided undertakings to:

• discharge the mortgage payments on the former matrimonial home, use her best endeavours to release the husband from the mortgage and indemnify him in any event.

• sell the former matrimonial home if the Husband was not released from the mortgage by 30 September 2012.

In 2011 the wife gave notice of her intention to apply to vary the undertakings. She sought to defer the husband's release from the mortgage and for the former matrimonial home to be sold in default only upon the youngest child's 18th birthday or when he ceased full-time education. The youngest child was, at that time, aged 13.

In January 2014 the court at first instance held that there was no jurisdiction to vary an undertaking under section 31 of the MCA 1973. On appeal from the District Judge the wife argued her application was not an application for a variation of an order under section 31 of the MCA 1973 but was an application to vary an undertaking, to which a more general discretion applied. The wife's appeal was dismissed and Judge Waller held there was no power to vary the undertaking in the manner the wife sought.

On appeal the wife submitted that the undertakings given were in reality an order for sale under section 24A of the MCA 1973 to which the power of variation under section 31 applied without qualification. The court had a power to order a variation and, in doing so, would have to give "first consideration" to the welfare of the minor children.

The Court of Appeal held that property adjustment (section 24(1)(a) MCA 1973) and lump sum orders (section 23(1)(c) MCA 1973) are not subject to section 31 of the MCA 1973, save for a lump sum payable by instalments. The primary function of section 31 MCA 1973 is to permit variations of periodical payments and the like.

The Court of Appeal stated that it was clear that section 24A of the MCA 1973 is a purely procedural section limited to matters of enforcement, implementation and procedure in respect of any order to which a section 24A of the MCA 1973 order for sale is attached. The Court of Appeal was of the view that the undertakings in this case did not aid the enforcement, implementation or procedure of the primary order for the transfer of the property to the wife. The property transfer was independent of, and separate from, the undertaking for sale. 

The undertakings were not to be regarded as merely incorporating by undertaking something that the court would or could have ordered under section 24A of the MCA 1973. Where the variation sought was an attempt to substitute and entirely different outcome the exercise of the jurisdiction should be limited.

In the alternative that the undertakings were the equivalent of an order under section 24A of the MCA 1973 the variation sought would have undermined the substratum of the order.

The appeal was dismissed

Re Young (A Bankrupt) [2014] EWHC 4315 (Ch)
Judge Andrew Hochhauser QC decided that Ms Michelle Young, the ex-wife of Mr Scot Young ("the Bankrupt"), would have to pay the outstanding costs of her failed applications in divorce ancillary relief proceedings to the joint trustees of her ex-husband's estate before they were obliged to summon a creditors' meeting at her request for the purpose of their removal.

The Bankrupt and Ms Young married on 31 March 2005. Mr Young had been an entrepreneur primarily involved in the property market, developing and running technology companies and start-up businesses. The couple separated on 5 November 2006 and, on 8 June 2007, Ms Young presented a petition for divorce. The Bankrupt's business and marriage collapsed at about the same time, and Ms Young claimed that he had manufactured his business implosion and removed his assets to keep them out of her reach.

Meanwhile, the Revenue had presented a bankruptcy petition for unpaid tax. A bankruptcy order was made and the joint trustees were appointed. The trustees decided not to make any adjudication of debts claimed by the creditors until there were funds available to make a distribution.

The Family Division awarded to Ms Young half of what it found the bankrupt had hidden from the court, thus making her a creditor.  The award remained unpaid.

Ms Young applied to the Family Division to have the bankruptcy annulled, but that application was later dismissed by a consent order, with costs awarded to the Revenue and the joint trustees.

The Family Division further decided that it lacked jurisdiction to hear Ms Young's application for an order that the trustees summon the creditors' meeting, and she was ordered to pay their costs of that hearing.

Now bringing that application as a cross-application before the Chancery Division, Ms Young sought to remove the trustees because in the four-and-a-half years since their appointment they had identified no assets and made no realisations.  She further asserted that they lacked lacking neutrality and were biased against her.  The trustees applied for a direction that they were not under an obligation to convene a creditors' meeting for the purpose of replacing themselves.

Under the Insolvency Act 1986 s.298(1) and the Insolvency Rules 1986 r.6.129, creditors have a democratic right to remove a trustee in bankruptcy at a creditors' meeting of which notice has been given and, under r.6.83, the trustee is obliged to summon such a meeting requisitioned by a creditor.

Under s.303 and s.363(1), the court has power to direct a trustee not to convene a meeting, a power which is only exercised where it is established that the removal of the trustee could have a dramatically inconvenient effect on the outcome of the bankruptcy.

In this case, the fairest resolution was to require Ms Young to pay the outstanding costs of her failed applications in the Family Division before the trustees were obliged to summon a meeting of creditors at her request.  Given that Ms Young had not been a creditor when the trustees had been appointed and so had had no say in their appointment, but was now the largest creditor, it was wrong to deprive her entirely of the opportunity to put her case for new trustees to the other creditors at a meeting held for that purpose.  Furthermore, it was surprising that, after four and a half years, there had been no adjudication of the creditors' claims. In view of that period of time, a further delay of up to six months caused by a replacement of the trustees would not have a dramatically inconvenient effect on the outcome of the bankruptcy and so there was no reason for the court to direct the trustees not to convene the meeting.

Ms Young's application was therefore refused and her cross-application granted in part.

Dated:     9 September 2015