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Financial Remedy Update May 2020

Sue Brookes, Principal Associate, Mills & Reeve LLP analyses the news and case law relating to financial remedies and divorce during April 2019.

Sue Brookes, Principal Associate, Mills & Reeve LLP

As usual, this updated is provided in two parts:


Coronavirus guidance continues to dominate.  Over the past month, we have seen:

• Mr Justice MacDonald release the fourth version of "The Remote Family Court"

• The Legal Aid Agency has updated its guidance

• Guidance on how to submit an appeal

•  the President of the Family Division considering the appropriateness of remote hearings

• Guidance as to the impact coronavirus is having on those at risk of domestic abuse

• Two rapid consultations on the impact of coronavirus on the justice system (the family justice consultation has already closed but the civil justice consultation is open until 15 May 2020)

• Data released by HMCTS on the use of audio and video technology which shows:

o since 7 April, 85-90% of cases have been heard remotely

o video technology is used in about one-third of cases

o audio technology is used in about two-thirds of cases

o face to face hearings have decreased to around 400

• Guidance for intermediaries

• An interactive heatmap from the Law Society which shows which courts are operational (or not)

• Guidance from the judiciary on how cases will be allocated for a remote hearing and then further guidance from Mr Justice Mostyn and HHJ Hess on how financial remedy cases will be dealt with.

• A new pilot Practice Direction 36Q (pilot provision: modification of Practice Direction 12B: coronavirus) and amendments to other existing practice directions.  From 23 April 2020:

o PD 12B (child arrangements programme) has been modified to provide that local practices and initiatives can be operated differently in relation to applications for child arrangements orders during the coronavirus pandemic. The purpose is to ensure that applications can be started and progressed, and orders can be made, varied and discharged. 

o PD17A (statements of truth) has been amended to provide that, where a form is referred to in PD 5A or is completed or generated online under Part 41 and allows for an electronic signature, references in PD 17A to a statement of truth being signed should be read to include an electronic signature. Electronic signatures can be a tick box, a printed name, an image of a signature or a digital signature generated by commercial software, appearing next to the statement of truth.

o From 30 April 2020, amendments to PD 12G (communication of information) and PD 14E (communication of information relating to proceedings) enable disclosure of information from family proceedings held in private to the Welsh Language Commissioner (WLC), without this disclosure being a potential contempt of court.

In other news:

• The Domestic Abuse Bill received its second reading on 28 April 2020.  It has now gone to a Public Bill Committee who will scrutinise the Bill line by line.  The Committee is scheduled to report by 25 June 2020.

• The Civil Legal Aid (Procedure) (Amendment) Regulations 2020, which will come into force on 15 May 2020, expand the types of evidence of domestic violence which may support an application for civil legal aid.

• Marriage rates for opposite-sex couples in 2017 were the lowest on record.  In total, there were 242,842 marriages in England and Wales in 2017, a decrease of 2.8% from 2016.   Less than a quarter (22%) of all marriages in 2017 were religious ceremonies, the lowest percentage on record.

• The Magistrates Association has responded to the FPRC consultation on legal bloggers emphasising that given the importance of greater transparency to improve the public's understanding of and confidence in the family justice system, and subject to safeguards, accredited legal bloggers should be allowed to attend family hearings.

• Minutes from the FPRC's March and April 2020 meetings have been published:

o we can expect revised Form H and Form H1 as a result of amendments to r.9.27 FPR 2010 which will come into force on 6 July 2020

o the Enforcement Working Group has proposed amendments to Part 33 FPR 2010

o we can expect a closer look to be taken at the service of pension sharing orders on pension scheme trustees


AW v AH [2020] EWFC 22

This case involved the former wife (W) applying for orders in respect of financial remedies pursuant to the Matrimonial Causes Act 1973, together with consequential declaratory relief. The first respondent was the former husband (H). The second respondent, BB, was a friend and business associate of H's who is based outside the jurisdiction in Hong Kong and who held shares in the third respondent, C Limited ("C Ltd"), a company registered in Hong Kong, in 2008, which owned various other companies as set out in the judgment. W argued that BB is H's nominee and that the beneficial interest in C Ltd and its corporate subsidiary holdings belonged in reality to H.

The parties had begun living together in 1998, married in 2001 and separated in 2011. In May 1998, shortly after they began living together, H had sold a business he had spent years building up for £86million. The parties then had ten years of unbridled expenditure and a wholly lavish lifestyle, mostly funded from capital. H continued to make investments, many of which were high risk. He borrowed from close friends and business acquaintances, as well as from banks to be able to do so. Unfortunately he lost substantial amounts of money and by 2008 he was in serious financial difficulties. He then filed for his own bankruptcy in 2011, shortly after the parties' separated, by that stage owing at least £33m to unsecured creditors.

After separation, W moved to Monaco, encouraged and assisted by H to do so, and both parties benefitted from her tax free status. W trusted H to rebuild his fortunes and she initially continued to support him in his business dealings, as she had done during the marriage, by allowing various investments to be made by him and held in her name.

The parties initially reached a separation agreement, which included a provision that the legal title of a French property, which H had previously gifted beneficially to W, would be transferred to W within 5 years, failing which the various other terms of the agreement would no longer apply. That property had to be sold and so the agreement did not stand, but it remained relevant to the extent that it reflected that H was clearly intending to be able to recover financially. Following his bankruptcy, he continued to invest, including in spread betting and other high risk investments, presumably with this intention.

The judgment sets out what the court knew about H's financial dealings, but Roberts J made clear that H's covert tactics, including his use of corporate nominee holdings, made it very difficult for anyone to establish to what resources H actually had resource at the time of the hearing.

The judge accepted H's evidence that he had previously disclosed everything in terms of his legal ownership to his trustee in bankruptcy. However, she made clear that, for the purposes of determining what are described as "financial resources" under s25 Matrimonial Causes Act 1973, the Family Court is engaged in a different exercise in considering the underlying reality of beneficial entitlement which is a more nuanced approach to the black-letter of insolvency law. There must be an element of fact-finding to determine who in reality is entitled to, or has had the benefit of, funds or income.

On the evidence available, the court (and W) had to accept there were very limited assets. W therefore accepted that, even if the court could draw adverse inferences against H, the best she could seek in practice was an adjournment of her lump sum and property claims and declaratory relief in respect of H's beneficial ownership in any residual value in various companies.

Roberts J found there was ample evidence that H remains in operational control of the relevant companies following the transfer of their legal ownership to C Ltd. She also found that H had operated his financial affairs to W's detriment, including his forays into spread-betting at a time when he knew, or ought to have known, that his finances were increasingly precarious. He has also appropriated funds which he had previously gifted to W, in a way which was unforgiveable and a serious dereliction of H's duty of full, frank and complete disclosure.

However, despite the duty on the court to achieve a clean break wherever possible, the court could not achieve a fair outcome in this case other than by adjourning W's claims and awarding her nominal periodical payments on a joint lives basis. Following Mostyn J in Haskell v Haskell [2020] EWFC 9, and Quan v Bray & Others [2018] EWHC 3558 (Fam), it would be wholly unfair to leave W with nothing, or next to nothing, where H's own evidence was that there was at least the possibility that he would improve his finances in the future to a level where he could provide both him and W with a modest home and the means to sustain a reasonable standard of living.

The adjournment was not open–ended and the judge ordered that all of W's claims would stand dismissed in 7 years' time, if by then H did not have the means to meet such an award. He would then be aged 70. H was left with a relatively modest pension, but he would be unable to draw on the fund without notifying W of his intention to do so and seeking the court's permission. H's other pension was transferred in full to W.

Robert's J made the declarations sought by W in relation to H's beneficial ownership in the various companies and that a substantial debt in W's name is the responsibility of H because it was part of the structure H put in place in anticipation of his likely bankruptcy.

H also had to pay 60% of W's costs because, whilst W did not succeed in identifying hidden assets or any means of H funding an immediate substantive settlement, H was guilty of litigation misconduct which should be reflected by a costs order in W's favour. The court was satisfied that W had taken all reasonable steps to try to settle the litigation. Given the state of H's disclosure, and the lack of coherent narrative to support his many hundreds of pages of paper disclosure, W had no alternative other than to proceed with the forensic enquiry carried out by her legal team over the 10 day hearing. This has led the court to adjourn her claims as W requested, and to that extent, W had been successful.

Roberts J did not order costs on an indemnity basis to give H some incentive to restore his financial position and W had borrowed from friends to fund her legal fees, at least one of whom accepted she may not get the money back. She summarily assessed the costs and initially ordered H the sum of £327,000 out of total costs of £545,000. H subsequently sought clarification of this figure in light of a previous LSPO order and he also sought permission to appeal. Roberts J then reduced this figure by £34,500 in light of the further submissions from both parties and declined H permission to appeal.

Maughan v Wilmot [2020] EWHC 885

This was the latest instalment in a long running case and follows the judgment of Mostyn J given last October [2019] EWHC 2765.

An initial freezing order to protect the sum of £400,000 had been made by Bodey J back in 2013, which H had subsequently breached.

At the last hearing, Mostyn J had ordered H to pay W's costs and those of a receiver, including both incurred and anticipated costs, totalling c.£68,000 and he granted a freezing order in the sum of £100,000 to allow some headroom for inevitably future litigation. However, in doing so he had been misled by the husband (H) about the true scale of H's unencumbered liquid funds. H's solicitor-advocate had told the court that H's pensions were worth over £350,000 and, whilst may have been literally true, subsequent investigations revealed the funds were not easily realisable.

Had Mostyn J known the truth, he would have made a freezing order in a materially larger amount to allow for the inevitable costs in achieving access to the funds.

Further significant costs had already been incurred by both W and the receiver since the last hearing, whilst they tried to establish the true facts, and they anticipated further significant costs would be incurred as a result of H refusing to co-operate with accessing the funds in practice. It was estimated that a total of £95,648 would be incurred as a result of the misrepresentations made to the court at the last hearing. Mostyn J confirmed all these additional costs had been reasonably incurred and should be paid by H.

Shortly before the hearing, H's solicitor-advocate filed a statement making various arguments on behalf of H, without adducing any new evidence. Mostyn J rejected these latest arguments.

H was already the subject of a Civil Restraint Order and could not seek any positive relief without permission of the court, which would require a separate application under FPR PD 4B paras 4.2 and 4.4 – 4.6. This also applied to H seeking permission to appeal the latest order.

H was required to pay costs on an indemnity basis as a result of his litigation misconduct.

W v H (divorce financial remedies) [2020] EWFC B10

This is HHJ Hess's judgment at a final hearing in a financial remedy case between a husband aged 50 (H) and wife aged 48 (W). They had three children aged 18, 16 and 10. They had been married since 2005 with 6 years' cohabitation and they separated in 2016 with W filing divorce proceedings that year. Decree absolute had not yet been granted.

It was a broadly equal relationship in terms of contributions.  H now earned £144,000 per year with a significant bonus.  W had given up work to bring up the children and, whilst she had since started her own business, now had the much lower earning capacity as a result. The judge found that she could expect to increase her earning capacity over the next 17 years and, whilst it was too speculative to say what she would earn, she could be expected to set her sights higher than the income she was currently earning.

The family home was worth £730,000 but had equity of only £241,782 and there were no other realisable assets. Each party had debts of over £50,000. The key assets were undoubtedly their pensions. W had a defined benefit scheme with a CE of £139,000 and a small defined contribution scheme. H had a defined contribution scheme worth £59,000 and a defined benefit scheme with a CE of £2,155,475.

In his judgment, the judge worked through section 25 Matrimonial Causes Act 1973, focussing in most detail on sub-section (h), the value to each of the parties to the marriage of any benefit which that party will lose by reason of the dissolution of the marriage.

Reminding himself of the principle that fairness and equality usually ride hand in hand and that this applies to pensions, as much as to any other asset, he considered the following three issues:

• Should the court should target equality of capital or equal incomes?

• Should the court exclude a portion of a pension if it was earned prior to marriage or seamless cohabitation?

• To what extent should the court disaggregate the pensions and order pension sharing as opposed to offsetting pensions with other assets?

He also considered A Guide to the Treatment of Pensions on Divorce: The Pension Advisory Group Report (July 2019).

There is no one size fits all in response to the first question. Examples where you may divide the CE include where the CEs are relatively small, where the parties are relatively young or where the future income producing qualities of the pensions are likely to be speculative or unreliable. However, simple divisions of the CE may be unfair where the pensions are medium or large, where there is a defined benefit scheme and income within the scheme is likely to be higher than the annuity income outside the scheme and where the parties are closer to retirement.

In this case, taking into account the ages of the parties and the size of the pensions compared to the non-pension assets, the fair and equal outcome would be to equalise pension incomes.

In relation to the second question, H was arguing that only 58.3% of his pension should be included in the calculations and the court should ignore the "non-matrimonial" accrual calculated on a straight-line basis. It is easy to identify pension as non-matrimonial property where it is wholly accrued prior to the relationship and pension funds are rarely subject to the mingling which can occur with cash assets. Excluding pre-acquired pension may therefore be a legitimate exercise in some cases, although the court retains an element of discretion in respect of sharing. However, the judge found that this approach, whilst widely adopted in practice, carries significant risks. The straight-line methodology, though simpler and easier to apply in practice, conceals an unfairness in cases such as this one, where a member spouse starts work on a lower income and rises to a high paid director during the relationship. Furthermore, where the pension is the main resource for meeting the parties' needs in retirement and there is not a surplus over needs, it is difficult to see that excluding any pension can be justified. As per the PAG report, given the life-time allowance, even a "big" pension case will usually be a needs-case and it is normally non-pension assets which will take a case out of the needs bracket.

In relation to the third issue, following Martin Dye v Martin-Dye [2006] 2 FLR 901, the orthodox view is that pensions should be dealt with as separate assets. Whilst many litigants choose to blur the lines between the categories and offset to a greater or lesser extent, that does risk unfairness as valuation issues become very difficult.

In this case, the judge adopted the recommendations of the actuary, which were accepted by the parties, and made an order on the basis of equalisation of income at age 60. Concluding that this was a needs case, the proper and fair approach was to equalise income taking into account all pensions including any pre-acquired. However, he accepted H's argument that, rather than allowing an offset to give W all of the equity in the house as she had sought, he should treat the assets separately and divide the equity in the property equally to give H some liquid cash and there would be no offset. H had agreed to W and the children remaining in the house until 2024 and a Mesher order was therefore made on those terms.

Finally the judge considered W's arguments for a global maintenance and H's arguments that maintenance should continue until 2024 and made a top up order (as there was already a maximum CMS assessment in place) and ordered separate spousal maintenance for a term up to W's 60th birthday, at which point her claims were to be dismissed with a s28(1A) bar on the basis that she could rely on her pension.

Padero-Mernagh v Mernagh (divorce – nullity – remote hearing) [2020] EWFC 27

The wife (W) applied for divorce in July 2018 in relation to a marriage certified to have taken place in the Philippines in 2005. The husband (H) filed his acknowledgment of service and a defence stating the marriage was bigamous as W remained married to another man and the marriage ceremony had failed to comply with Philippine law. H therefore cross-petitioned for nullity.

The matter was listed for a final hearing before Williams J in November 2019, but he adjourned the hearing and made directions because the case was clearly not ready for final determination.

The recital to that order listed the questions which needed to be answered and the order was then sent to the Queen's Proctor who was asked to address the questions asked. The parties were both litigants in person and had limited means and the judge therefore also provided for the Queen's Proctor to apply for further directions in relation to expert evidence on the law of the Philippines, on the basis that the parties would be unable to deal with this. 

There was then a delay with the Queen's Proctor before the Attorney General's office confirmed that the Queen's Proctor had been instructed to make submissions as directed but not to address the question of expert evidence on the law of the Philippines.

The hearing proceeded remotely by way of Skype as a result of the Covid-19 pandemic. The judgment sets out the directions/ground rules made by the judge at the start of the hearing.

It then goes on to summarise the parties' respective positions and the legal framework.

The judge reached conclusions based on the balance of probabilities, with the burden of proof lying with the person who asserted a fact. The burden of proof was on W to establish that there was a valid marriage capable of being dissolved by divorce, assisted by the presumption of formal validity. The burden of proof also lay on H to prove on the balance of probabilities that W was already lawfully married and/or that the marriage was invalid for procedural irregularity.

Working through the available evidence, the judge was satisfied that W had been lawfully married to her first husband in 1994 and that her marriage subsisted up to the parties' ceremony. The fact that W may have believed records of her first marriage no longer existed, did not affect the fact that she remained lawfully married. The judge therefore concluded that the parties' marriage was not valid under Philippine law (based on the limited evidence that had been submitted by the parties), regardless of what H's understanding about W's first marriage might have been at the time, and it was not therefore a marriage that could be recognised in English law. It could not be the subject of a divorce but it could be subject to a decree of nullity pursuant to s11 Matrimonial Causes Act 1973.

There were other irregularities with the marriage certificate, including the place of marriage being wrongly recorded, but that would not have been enough to invalidate the marriage under the local law – it was the fact that W was already married to someone else which was the issue.

H had only challenged the divorce in response to W's claim for financial relief, reflecting his misunderstanding of the law in this area. The court was less than impressed with H's concession that he regretted having challenged it because he had subsequently realised that he could bring a claim against W for financial relief. Had the evidence established that H had knowingly entered a bigamous marriage, his manipulative stance in relation to the granting of a divorce may have been sufficient reason on public policy grounds to decline to grant a decree of nullity.

Neither party emerged from the proceedings with much credit. H won on the issue of nullity but his litigation conduct was such that it may have justified a costs order being made against him.

Whilst the court could order the parties to pay the Queen's Proctor's costs, the costs were incurred at the court's request and both parties were of limited means, so the court made no order as to costs as well as dismissing the application for a decree of divorce and granting H's application for a decree of nullity.