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Financial Remedy Update, August 2021

Abigail Pearse, Associate at Mills and Reeve, consider the important news and case law relating to financial remedies and divorce during July 2021.

Abigail Pearse
, Associate, Mills and Reeve

As usual, the update is divided into two parts.

A. News

A View from the President's Chambers

The latest View confirms that we can expect new guidance about the operation of the courts, following the lifting of most COVID-19 restrictions.  The President's View anticipates that by December 2021, all courts will be using the online public law service, making its use mandatory for local authorities along with a reminder that, from 13 September 2021, use of the online divorce service becomes mandatory for legal professionals.

House of Commons Justice Committee report finds legal aid needs urgent reform

The report warns that a rigid system of fixed fees and low pay is leaving firms specialising in legal aid struggling. The sustainability of legal aid providers is critical to ensure that those eligible for legal aid are able to be supported through what, it finds, can be a complex and daunting system.  The Committee calls for the civil legal aid system to be overhauled and simplified; and argues that early legal advice can help to make the courts operate more effectively.

Civil Justice Council report on mandatory ADR

The Civil Justice Council has published a report on mandatory alternative dispute resolution which confirms that mandatory ADR is lawful as it is compatible with Article 6 of the European Convention on Human Rights (ECHR). However, the chair of the judicial/ADR liaison committee and lead judge for ADR, Lady Justice Asplin, has also said that "more work is necessary in order to determine the types of claim and the situations in which compulsory (A)DR would be appropriate and most effective". 

Nuffield Family Justice Observatory report on remote hearings

More than 3,200 family justice professionals, parents and other family members have shared their experiences of the family court over the last year as part of a rapid consultation by the Nuffield Family Justice Observatory to inform post-pandemic recovery planning by the President Sir Andrew McFarlane. The majority of professionals saw a continuing role for certain types of remote hearing, but raised concerns that hearings were often remote by default and that considerations such as the vulnerability of lay parties and their wishes and views, the complexity of the case, and whether there was access to suitable technology for all those taking part should be taken into account. There was support for remote administrative hearings, but much less for remote fact-finding hearings, hearings involving contested applications for interim care or contact orders or final hearings. Some respondents commented that remote hearings would always be inferior to hearings in person. 

Cohabiting couples to benefit from changes to bereavement benefit rules

The Department for Work and Pensions has announced plans to extend bereavement support to cohabiting couples with children.   At present, a surviving parent can only claim the financial support if he or she was married or in a civil partnership at the time of their spouse or civil partner's death.  The government is now proposing that Widowed Parent's Allowance and Bereavement Support Payments will be extended to surviving cohabiting partners with children who were living with their partner at the time of death.  Once approved, the changes will apply retrospectively from 30 August 2018, with any backdated payments being made as lump sums.

Online divorce to become mandatory from 13 September 2021

HMCTS will be mandating the digital divorce process from 13 September. This means that legal representatives will need to process their divorce applications using the digital online service rather than using the paper D8 form.  Divorce applications should continue to be processed via the paper route in the following instances only:  Civil partnership dissolutions, nullity and judicial separation petitions will continue to be made on paper only. 

HMCTS removes Microsoft Teams and Skype from guidance  

HMCTS has updated its guidance for remote hearings and has removed links to Microsoft Teams and Skype as they are generally no longer used for video hearings

Settlement reached in Akhmedov divorce

The Guardian has reported that Farkhad Akhmedov and Tatiana Akhmedova have reached a settlement in the litigation pursuant upon their divorce and that Ms Akhmedova has "accepted a cash and art settlement".

B. Cases

MB v JB [2020] EWFC B69

Following a 30-year marriage, the relationship broke down "abruptly" in 2015 when the wife (aged 59 years) ("W") was arrested for (and subsequently convicted of) ABH on the husband ("H").  She had been prevented from returning to the family home ever since.  She had suffered ill-health and was by the time of the final hearing being cared for in a care home (at public expense) for cirrhosis of the liver.  Her life expectancy had been significantly shortened by her health.  H was continuing to live in the jointly owned family home (which had been purchased in 1983) but had also suffered health problems and was now retired. 

H had tried to deal with things on a voluntary basis but by July 2019, with no progress being made and no disclosure from W, he issued a Form A.  W engaged sporadically in the proceedings. 

Both wanted their own home; however, there simply was not enough capital to make this happen.  The family home was worth £286,000 and H had some modest pension provision totalling £104,000 which was just meeting his outgoings.  W claimed she had no assets which was disputed by H who alleged that throughout the marriage and since separation W had "engaged in a sustained, complex and hidden campaign of financial abuse against [H]".  He invited the court to draw inferences that W had channelled money into her late mother's property and had an interest in that property either through her investment or through inheritance.  He also ran an add-back argument.

HHJ Vincent heard substantial and compelling evidence around W's conduct of the family finances.  The judge was satisfied that, on the balance of probabilities, W had throughout the marriage concealed information about the family finances from H (keeping them a "closely guarded secret") and that without his knowledge had used his personal details and forged his signature to obtain money.  Her deception included re-mortgaging the family home, cashing-in joint policies, running up debts of over £100,000 and almost having the family home re-possessed on two occasions.  In total, W's actions had cost H at least £160,000.  W could not explain what had happened to the money but the judge was satisfied that a significant amount had been used to pay for furnishings and fittings at her late mother's property (although the judge was not satisfied that W had inherited a share of the property large enough to allow her to re-house independently).

In circumstances where W had failed to give full, frank or reliable financial disclosure, and given her past conduct, the judge concluded that W's failure to disclose was deliberate and for her benefit and to disadvantage H; adverse inferences were therefore made.  When conducting the s.25 exercise, HHJ Vincent noted that "it would be inequitable to disregard the wife's conduct throughout the marriage…her actions exposed [H] to significant financial liability, depleted the funds they did have…"

Adding £160,000 back onto W's side of the balance sheet, HHJ Vincent found that W was able to meet all her outgoings (put at £20,000 a year) from undisclosed income and that her housing needs would either be met by the state or her step-father.  Her health mitigated against her receiving a housing fund.  The family home was transferred into H's sole name on a clean break basis.  Overall, this resulted in a 62:38 split in H's favour. 

E v L [2020] EWFC 60 and [2020] EWFC 63

In an important development in the line of cases that deal with short, childless marriages, Mr Justice Mostyn considered the fact that the marriage was childless was irrelevant to whether there should be a departure from the application of the equal sharing principle. Moreover, there was "absolutely no logical reason" to distinguish between asset accrual in a short marriage and asset accrual in a longer marriage. The statutory factor of the duration of marriage was likely to be reflected in any event in that an acquest over a shorter period was likely to be less.

W and H were both in their sixties and had cohabited from 2016 before marrying and then separating in 2019.  H was a successful production manager for live music events and W was a homemaker.  From the beginning of the relationship, H had financially supported W (monthly payments between £5,500 and £10,000).  Much of the dispute centred on the value of one of H's businesses, A. 

W sought £5.5 million.  H offered £600,000.  The couple's "extraordinary" difference in open positions was because H was arguing that in a short, childless marriage, it was not appropriate to share the marital acquest. Instead, he said, any award received by W should be confined to her very conservatively assessed needs.  Meanwhile, W was seeking 50% of the total marital acquest. 

Mostyn J rejected H's arguments based on Sharp v Sharp and took a restrictive view of Sharp, commenting that when applying the sharing principle:

Mostyn J awarded W £1,515,000, half the marital acquest accrued between January 2016 and June 2021. He reiterated that marital acquest is calculated as at the date of trial, except in cases of undue delay between separation and the start of proceedings. W already had her own property, and the award provided a Duxbury fund that would produce an annual income of £90,000 to meet her reasonable needs.

In a separate judgment, Mostyn J considered costs which now totalled £900,000.  H was ordered to pay 25% (£109,000) of W's costs on the grounds that H had unreasonably refused to accept that marital acquest should be shared equally, he had sought to run a "disproportionate" conduct argument and he had refused to negotiate reasonably and responsibly.    Meanwhile, W was ordered to pay all of H's costs refereable to her misconduct in accessing H's computer (£23,400).

A v A (Arbitration: Guidance) [2021] EWHC 1889 (Fam)

Following Haley v Haley [2020] EWCA Civ 1369, there was some confusion amongst practitioners as to how exactly a challenge to an arbitral award was to be made so as to ensure it was dealt with in the same way as an appeal in financial proceedings. 

Mr Justice Mostyn gave guidance about the correct procedure for applying to challenge an arbitral award or to implement such an award, where the other party refuses to consent to it. He also appended to his judgment a standard gatekeeper's order for use when making the application.  The guidance and a standard gatekeeper's order (which has been added to the compendium of family standard orders as Order 6.5: Arbitration: gatekeeper's initial order) were approved by McFarlane P. 

Hasan v Ul-Hasan (Deceased) [2021] EWHC 1791 (Fam)

In this rather unusual case, Mr Justice Mostyn held that the wife's ("W") un-adjudicated substantive claim under Part III MFPA 1984 did not survive the husband's ("H") death and had to be dismissed. However, the judgment is noteworthy because Mr Justice Mostyn considers the binding case law to be incorrect and suggests that either party might consider making a leapfrog appeal to the Supreme Court.  Much of his obiter observation discusses whether or not post-divorce financial provision is a "cause of action" under s.1(1) Law Reform (Miscellaneous Provisions) Act 1934 and the difference in approach taken to cases where death occurs shortly before trial and those where death occurs shortly after (e.g. Barder v Barder (Calouri Intervening) [1987] 2 FLR 480).

Haskell v Haskell [2021] EWHC 1867 (Fam)

The wife sought two judgment summonses against the husband in circumstances where he had failed to pay the first two instalments of a lump sum totalling almost £700,000 (not including interest) as well as child maintenance and school fees.  The first judgment summons covered the first instalment of the lump sum and the first instalment of the child maintenance (£78,788).  The second judgment summons covered the second instalment of the lump sum and arrears of child maintenance (£819,979). 

It was significant that "payment" of the second judgment summons relied on findings of fact made by the trial judge that H's finances were opaque and that the judge had drawn adverse inferences as a result of H's non-disclosure.  Based on this evidence, W could not establish beyond reasonable doubt that H could pay the sum due.

However, in relation to the first judgment summons H had told the court that he had £50,000 which was in a trust account for the benefit of the couple's children and the High Court was satisfied that that H had had the means of paying the first lump sum instalment when it fell due and had refused or neglected to do so.  The judge was satisfied that H had paid the child maintenance.  Consequently H was sentenced to six weeks imprisonment suspended for 14 days to all him to pay the £50,000 outstanding.  W was awarded her costs of £30,000. 

A v R [2021] EWFC B35

Following "bitterly contested" proceedings, a final financial order was made.  The husband ("H") successfully applied for a costs order on the basis that the wife's ("W") evidence about her financial circumstances was "elusive and evasive" and was awarded £16,000, with the trial judge following OG v AG [2020] EWFC 52. 

Q v Q [2021] EWHC 1757

With a background of litigation stretching back 31 years (decree absolute had been granted in 1990) and involving 20 different judges, Mr Justice Cobb was faced with determining a variety of applications brought by the wife ("W") (acting in person) including a freezing injunction, a non-molestation order, variation of a financial order and costs. 

Cobb J described W's case as "chaotic" and that her arguments disclosed a tendency towards "paranoia and delusional thinking" particularly in relation to her allegations that H and his family were guilty of serious criminal misconduct.  W's GP had diagnosed an emotionally unstable personality disorder and as a result W was judged to be a vulnerable party under Part 3A FPR 2010. 

W's case was that she had been wronged by H and was entitled to financial recompense. The trigger appears to have been an expectation by W that H would inherit from his stepfather. The monies she claimed were owing were spousal maintenance payments payable between 1990 to 2007. 

H denied that he owed any sums and accused W of trying to opportunistically resurrect litigation.  The proceedings had cost H dear: he had had to re-mortgage his home three times to pay legal fees; he was declared bankrupt in 2007; and he had had his house repossessed later that year. 

Nearly all of W's applications for enforcement or FR orders were dismissed, and two were certified as being totally without merit.  Her application for a non-molestation order was also dismissed as she was seeking an order to restrain H from speaking to the press and this did not fall within s.42 Family Law Act 1996.  The only application which was not criticised was an application for maintenance to be varied upwards and that now goes forward to a directions hearing. 

ND v GD (Financial Remedies) [2021] EWFC 53

In this case, the total assets available for division were approximately £2.6million; however the bulk had been accrued by the husband ("H") (inherited from his mother) five years before separation.  The wife ("W") had received an untimely diagnosis in 2018 of Young Onset Alzheimer's which would have a significant effect on her life expectancy (reducing it from 30 years to five - ten years) and medical needs.

Broadly, W's open position was that she sought £1.2million; H meanwhile was proposing she should receive £750,000.  Unfortunately, their combined legal costs of £483,000 exceeded the difference between them.  

This was a long marriage where both parties had made a full contribution.  The family had enjoyed a modest standard of living with their combined income never being more than about £50,000 a year.  In 2009, the family moved out of London and had bought the family home for £320,000.  When H's mother died, H had been the sole beneficiary.  The estate included a residential property portfolio worth about £3.2million. 

Following W's diagnosis, her condition had worsened to the extent that she was no longer able to work or drive, she had been receiving professional home care, could find herself a little lost on familiar walks and needed help with finances and making appointments.  Whilst it was inevitable that her condition would decline, what was difficult to predict was the timescale of deterioration, the increased care she would need at home and when residential care would be needed. 

Mr Justice Peel concluded that this was not a sharing case.  It was clear, he said, that a great deal of the assets originated from H's mother's wealth, and H had received that only five years before separation and had not substantially mingled those monies with the family's other assets.  Only the family home, cash in the bank and the pensions fell to be considered as matrimonial property. 

However, W's needs had to be informed by all the circumstances of the case.  Here, Peel J saw the value of W's wish to be independent and living at home for as long as possible (expert evidence backed this up).  Her needs therefore comprised both property and income whilst acknowledging that a time would come when she would need to access the funds in the property to defray some of her income needs.  Peel J - "doing the best" he could on the available evidence and acknowledging that it was impossible to map out W's income needs with absolute precision because of the high level of variability - awarded £950,000 on a clean break basis comprising the family home and a lump sum of £513,000 plus her own modest assets (after legal costs).  This left H with £1.6million i.e. a 63:37 split in H's favour.  The clean break here was desirable not only to defuse the ongoing tensions between the couple but the likelihood was that a maintenance order would be subject to multiple variation applications in the future because there were so many variables in W's care requirements.  W's health was unlikely to withstanding much more litigation. 

However, that wasn't quite the end of the story.  Contrary to the clear requirements of r. 9.27A and para. 4.4 PD28 FPR 2010, Peel J determined that H had not "negotiated openly in a reasonable manner".  He had not made an open proposal until 30 April 2021 - six weeks before the final hearing – whereas W had made her open proposal almost a year before.  The judge reiterated that "parties must constructively and openly attempt to settle a case" and quoted from OG v AG [2020] EWFC 52.  In this case though he decided not to make a costs on the grounds that the net effect of the financial award was to meet W's needs after payment of her legal costs and the reality was that W's costs had been funded from H's assets. 

Potanina v Potanin [2021] EWCA Civ 702

The wife ("W") appealed against a 2019 order of Mr Justice Cohen setting aside his own without notice order for leave under Part III MFPA 1984.  The Court of Appeal took the opportunity to consider the proper approach to both stages of a Part III application, concluding that W's appeal should be allowed. 

Lady Justice King confirmed that an application to set aside permission is not an opportunity to explore matters that should be litigated at the final hearing. It requires only a short listing, as the applicant must deliver a "knock-out blow", for example, demonstrating that the court has overlooked a decisive authority or been misled. Otherwise, the court should adjourn the application to be heard with the substantive application (Agbaje v Agbaje [2010] UKSC 13).  Cohen J had fallen into error in embarking on a wholesale examination of the evidence and making findings at the set aside hearing in the absence of oral evidence.  

A permission application (s.13 MFPA 1984) should be determined without notice, but may be heard on notice, if appropriate (r.8.25(3) FPR 2010). King LJ clarified that in a complex case, such as this one, an on-notice hearing is likely to be appropriate and makes a set aside application less likely. However, determining permission, whether without or on notice, is a summary decision that requires only a short hearing.

King LJ also noted the complexities involved in Part III applications, including the approach to s.16 MFPA 1984, which is considered both at the permission stage and at the final hearing. She emphasised the importance of a straightforward and cohesive procedure, suggesting Part III applications would benefit from consideration by the Law Commission.

AJC v PJP [2021] EWFC B25

Having considered the meagre guidance, DDJ Hodson held that converting a nominal maintenance order into a substantive one was different to a variation application (s.31 MCA 1973), though it involved a consideration of the section 31 criteria. A payee receiving maintenance at a particular level knows it may decrease if their income increases and may increase if the payer earns more and they can demonstrate need. A nominal order should only be converted if a significant change in circumstances occurs. Neither party expects it to happen and it is not budgeted.

The wife ("W") had the benefit of a 2012 nominal spousal maintenance order.  Because of the pandemic, her employment as a pilot had ended and, as a short term remedy, she applied to convert the nominal order into a substantive one worth £2,000 plus child support.  H argued his business had also suffered during the pandemic, and he had a large mortgage. After child support and school fees, he did not have a substantial amount for living expenses.

W's application was dismissed.  It was considered unreasonable to convert the order where W had been self-sufficient at the time it was made, eight years had passed, the parties' youngest child was now 14 and the change in circumstance was the economic impact of a pandemic affecting billions.  Unexpected developments in life occur, and where those arise from, or are compounded by, the marriage, conversion of a nominal order may be justified. Here, W's unemployment due to COVID-19 could not be ascribed to relationship generated disadvantage. A nominal spousal maintenance order made years earlier was not the basis for requesting short-term financial support when H had paid nothing over that period and was himself facing worsened financial circumstances.

Barclay v Barclay [2021] EWFC 40

The issue before the court was whether the full judgment in financial remedy proceedings should be published either in full or in part and whether a reporting restriction order should remain in place.   The parties had already agreed that the award and their open positions could be made public.  Mr Justice Cohen determined that he would not permit the publication of the substantive judgment, based on the starting point that the proceedings were conducted in private and that while he had criticised husband ("H"), these were largely acts of omission rather than commission (ignoring orders, failing to disclose documents, failing to pay the single joint expert) and had not significantly affected the outcome of the proceedings (although they had caused delay).

HW & WW (Covid 19 pandemic: set aside a financial remedy consent order?) [2021] EWFC B20

Interestingly, the court commented that the coronavirus pandemic (as an extraordinary event, different in nature and scale to any similar world event) and its impact upon a key asset was a potential Barder event.   HHJ Kloss said that provided an application was made in good time of the effect of the pandemic being noted upon the value and liquidity of an asset, an application had the potential to open the door to set aside.  Here, although the husband ("H") had made a prompt application to set aside a consent order made in March 2020, by March 2020 the risk of the pandemic to his business (and the impact on its share value) had been reasonably foreseeable and it was not necessary for H to have foreseen the full extent of that risk.  His application was therefore dismissed reflecting the fact that the Barder hurdle remains deliberately high.