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Finance and Divorce January Update

Anna Heenan, solicitor and David Salter, Joint Head of Family Law at Mills & Reeve LLP analyse December’s financial remedies and divorce news and cases.



Anna Heenan and David Salter both of Mills & Reeve LLP As usual, this 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.

Six in ten believe that divorce is too easy
A poll of 2,000 people, conducted by ICM for the law firm Pannone, found that 57% agreed or strongly agreed that "it is too easy to divorce these days." Amongst those that were currently married, 58% agreed with the statement. However, the percentage amongst divorcees was 56%.

For the full story, click here.

New rules on Expert Evidence
The Family Procedure (Amendment) (No.5) Rules 2012  amend the FPR 2010 by, inter alia, inserting a new Part 25 (experts and assessors).  The changes come into force on 31 January 2013.

Changes will be made to the rules on expert evidence in family proceedings. There will be an alteration to the duty to restrict expert evidence to one where expert evidence has in the opinion of the court to be "necessary" to assist the court to resolve the proceedings (rather than the present test where expert evidence is "reasonably required"). Controlling the use of expert evidence will also become part of the active management guidance at FPR 1.4.

The changes implement the recommendations of the Family Justice Review and will apply to new and existing cases.

Supreme Court refuses permission to appeal in Lawrence v Gallagher
The Supreme Court felt that the case, the first reported on the dissolution of a civil partnership, did not raise a point of law of general public importance.

For more information, click here.

Bank employee fined for data protection offences for accessing her partner's ex-wife's bank account
The employee's partner was in the process of divorcing his wife and negotiating a financial settlement. His wife became suspicious that her account had been viewed during discussions between the parties.

The bank employee pleaded guilty to 11 offences under section 55 of the Data Protection Act, and was fined £500 by, ordered to pay a £15 victim surcharge and £1,410.80 prosecution costs.

For more information, click here.

Government response to Equal Marriage consultation published
The Government launched a public consultation on same-sex marriage in March 2012. That consultation received 228,000 responses, together with 19 petitions, which is the largest response ever received to a Government consultation.

To ensure that no religious organisations or ministers would be forced to conduct marriage ceremonies for same-sex couples, the response sets out a "quadruple lock". The measures are:

1. ensuring the legislation states explicitly that no religious organisation, or individual minister, can be compelled to marry same-sex couples or to permit this to happen on their premises;

2. providing an 'opt-in' system for religious organisations who wish to conduct marriages for same-sex couples;

3. amending the Equality Act 2010 to reflect that no discrimination claims can be brought against religious organisations or individual ministers for refusing to marry a same-sex couple or allowing their premises to be used for this purpose; and

4. ensuring that the legislation will not affect the Canon law of the Church of England or the Church in Wales.

The response also makes clear that civil partnerships will be retained, but that they will not be extended to same-sex couples. The Government will allow those in existing civil partnerships to convert their union into a same-sex marriage.

Additionally, the consultation allows for people who change sex whilst married to remain married.

The response is available here.

Pension changes announced in Chancellor's autumn statement
Amongst the changes announced was a reduction in the Lifetime Allowance to £1.25 million. If a pension benefits exceed this limit then the excess will be subject to a 55% tax charge. The Chancellor also announced a reduction in the annual allowance (the amount that can be contributed to a pension scheme without a tax charge to the pension scheme member) to £40,000. Both changes will apply from April 2014.

For more information, click here.

Update published on the implementation of the Family Justice Modernisation Programme
The update covers the following developments:

- the Single Family Court
- the Children and Families Bill
- Judicial training
- the Family Justice Board
- Experts in the family courts
- The Family Court Guide
- Removal of legal aid in private law children cases.

For more information, click here.

Law Society announces changes to mediation accreditation scheme from April 2013
The Law Society seeks to build up membership of the scheme and to help members respond to the changes to family justice. The changes include:

- introducing a single standard for all mediators (at present there is a difference between publicly and privately funded mediators);

- adoption by the Law Society of the Mediation Council's Code of Practice to prevent confusion arising from there being two codes of practice in force;

- extended access to the Law Society scheme to all suitably qualified family mediators (and not just solicitors); and

- new accreditation and assessment processes and reduced prices.

For the full story, click here.

Extension to list of overseas relationships which may be treated as civil partnerships
The Civil Partnership Act 2004 (Overseas Relationships) Order 2012 amends schedule 20 to the Civil Partnership Act 2004, which lists partnerships that may be treated as civil partnerships for the purposes of the Act, provided certain other conditions in the Act are satisfied.

For more information, click here.

Government launches divorce app
The app, launched by the Department for Work and Pensions, is called "Sorting out Separation".

Work and Pensions Minister, Steve Webb, said:

"Parents tell us they don't know where to turn for support when they're going through a separation. A third of British children now live in separated families and it's vital we help parents to access better advice. Parents working together is in the best interests of the children, and more collaboration helps minimise the impact of separation on them.

"That's why we're launching a new web app, named Sorting out Separation and hosted by leading parenting websites, to give people support tailored to their needs."

For more information, click here.

Family breakdown and the declining importance of marriage are key causes of Britain's serious social problems
A YouGov poll of 1,722 respondents on behalf of the Centre for Social Justice found that:

- 55% said that at least one of their local communities was plagued by broken families, crime and poor schools;

- 60% said that over the last few decades, marriage had become less important to society and that was having a damaging effect on the country; and

- 89% identified better parenting and stronger families as the key to mending the broken society.

For more information, click here.

Fifteenth state joins up to Rome III
Lithuania has joined up to the Council Decision allowing couples to select the law that applies to their divorce and legal separation (to avoid the need to 'rush to court'). The Council Decision was adopted under the enhanced cooperation procedure, which allows groups of Member States to 'go it alone' in the absence of agreement by all EU Member States.

The UK has not indicated any intention to join up.

For more information, click here.

Case law update
This section of the update considers that Davies case in which the central asset was a hotel business inherited by the husband.

Davies v Davies [2012] EWCA Civ 1641 (Thorpe, Elias and Rimer LJJ) 8 November 2012
This was the husband's appeal against a first instance award in financial remedy proceedings. The wife had been awarded the former matrimonial home and a lump sum payment of £2.2 million. The husband argued that the lump sum payment should be reduced to £1.5 million.

The husband owned and operated the Cardiff Hotel in London. The hotel business was run from premises comprising three adjoining houses and this distinction between the hotel business and the premises is important to bear in mind when reading the judgments.

The dates are not entirely clear from the judgments, but it appears that the husband inherited the hotel business prior to the marriage. At that stage, he owned the hotel premises jointly with his two sisters. It appears that he bought out his sisters' interests in the premises during the marriage so that by the time of separation he owned the whole of the premises (as well as the hotel business).

The wife's contributions
At first instance, the husband argued that the wife's role in the hotel had been as a receptionist, that she had worked intermittently at the hotel and that the marriage was a short one. For all of these reasons, the wife's entitlement was modest. In the alternative, the husband argued that the hotel was inherited, not the product of shared endeavour, and therefore it should not be used to meet the wife's claims.

The wife's argument, which was accepted by the trial judge, was that her efforts had made a significant difference to the status of the hotel.

The value of the hotel business
The value of the hotel business itself (not including the premises) was an issue raised by the husband on appeal. It does not seem to have been such an important strand of the husband's case at first instance.

At first instance, the judge had had to decide between the evidence of the husband's expert and that of the wife's as the report of the single joint expert had been unsatisfactory. The judge preferred the evidence of the wife's expert but neither expert was able to provide a valuation for the business at the time the husband inherited it. The wife's argument, accepted by the judge, was that 1/3 of the assets should be attributed to the husband and excluded from the sharing principle. The remaining 2/3 should be divided between the parties.

Elias LJ commented:

"The judge below accepted that the matrimonial assets should be subject to the sharing principle, particularly given the significant contribution made by the wife to the business. However, he appears to have accepted, as the courts frequently do in relatively short term marriages of this kind, that the assets of the husband acquired before the relationship was established should not be treated as part of the matrimonial assets subject to distribution. Accordingly, because the husband had a one-third interest in the freehold of the hotel property before they married or cohabited and the wife had none, this interest had to be valued and subtracted from the assets available for distribution. The husband's complaint is that precisely the same principle should have been applied to the hotel business which he had been given by his parents very shortly after co-habitation had started, yet no specific credit was given for this…. It is not entirely clear to me whether credit was given or not…."

Elias LJ commented that the judge seemed to have concluded the business was virtually worthless, so on that analysis there was nothing to credit. However, part of the reason that the judge had accepted the wife's concession was because "it is not possible to identify with accuracy historical values" for the hotel business. This might suggest he accepted there was some value, albeit that it was difficult to assess.

The appeal hearing
Thorpe LJ concluded that:

"… the judge did fall into error in … in accepting that the business itself was of no value at the date of the husband's acquisition. However, I am not persuaded that the result ultimately ordered by the judge is infected by that error.

I am impressed by [counsel for the wife's] point that on the wife's behalf he had conceded that one third of the total net assets should be extracted and protected from the wife's claim. He further demonstrated that the judge had acted on that concession without which the judge's award might well have exceeded £2.2 million. Cross checking for fairness, the effect of the order was to give the wife approximately one third and the husband approximately two thirds of the total available assets. Such a percentage fairly reflected the derivation of the hotel and its trade. Given the resounding nature of the judge's findings in the wife's favour anything less than a third would have been plainly unfair."

Elias LJ, who agreed with Thorpe LJ, felt that the business would have had some value. However, he felt there was "considerable force in the wife's submission that her concession may well have been as beneficial to the husband as [deducting the value of the hotel business from the assets before determining the wife's share]." Elias LJ then outlined four considerations which he felt showed that valuing the hotel business would be "particularly daunting and speculative":

"First, the value of a hotel business of this kind will depend principally on the goodwill, but that is in part located in the premises and in part it is a personal goodwill generated by the way in which the owners run the hotel…. The husband is now contending that the profits have remained much the same quite irrespective of who has been running the business which, if true, would suggest that the goodwill lies principally in the premises themselves.

Second, the goodwill attached to the place was only capable of exploitation by the hotel business itself once it had taken a lease of the premises. Without some possessory title allowing the husband, through his company, to exploit the business, it would have been worth very little since at any time the business could have been forced to close at the whim of the owners of the premises. We were told that the business had in fact entered into a lease for twelve years, although with no right to renew, apparently some time after the parties began to co-habit. That was not referred to by the judge and indeed it is not clear to me that this evidence was even before him. This lease gave some security to the business and will no doubt have increased its value, but it was a wasting asset. Moreover, the rental for the lease would, I assume, have been paid for from the profits generated by the business, to which the wife made a significant contribution. Furthermore, at the time of the divorce the period of the lease would largely have expired and the business, treated independently of the premises in which it was located, would have had a very limited value indeed.

Third, given that the judge had found that the wife contributed markedly to the day to day operation of the business, her input would have been a very significant contribution to such goodwill as was personal. That would be so even if she was not able to improve significantly on the goodwill generated by earlier owners, perhaps because they had earned personal goodwill as a result of their commitment to running a client-friendly hotel. Once the former owners had left the business, however, their personal good will would have dissipated quickly. The wife (together with the husband) had to show commitment and drive to ensure that it was not lost.

Fourth, whilst the lease would have contributed to the value of the business, it would at the same time have reduced the value of the freehold itself, and to that extent would have had an adverse impact on the husband's one third holding. He could not have claimed the right to have both a third of the freehold valued (as it was) on the basis that the freehold was unencumbered and at the same time claim to have the full value of the business with the leasehold interest."

He concluded,

"For these reasons I doubt whether the value of the business itself, treated independently of the hotel building, was as significant as the applicant suggests, and the commitment of the wife played an important role in maintaining such value as it had. As I have said, I would accept that it would have had some value. But since the husband benefited from the wife's concession which allowed him to take one third share of the assets generated after the marriage before the equality principle came into play, I am far from convinced that he would have been better off if a more rigorous approach to the distribution of assets had been adopted."

Bhura v Bhura [2012] EWHC 3633 (Fam) (Mostyn J) 17 December 2012

This was the wife's application to enforce a financial remedy order made in the USA.

The parties were married in 1989 and had two adult children. They were British citizens of Hindu Indian origin and had moved to Georgia, USA in 2000.

The parties owned a jewellery shop in Georgia. In December 2010, after the wife left the former matrimonial home, the husband and his father stripped the shop bare and packed up all the items. The retail value of these items was found to be $4.85m and there was cash in hand of $263,405.

The wife issued divorce proceedings in Georgia. When the papers were served upon the husband, he left the USA and travelled to various other countries, including the UK. The husband did not attend the court hearings in the USA, although he was represented by counsel.

The court in Georgia ordered that the husband should pay the wife:

1. lump sum alimony of $2m within 30 days with statutory interest; and
2. pending payment of the lump sum, $4,000 per month commencing on 1 September 2011, with credit to be given in respect of such payments against the lump sum award.

The husband made no effort to comply with the order. He said that he had no money at all and was living on state benefits. He had owned a London property, but had transferred 75% of its value to his parents as a gift. "That is rented out but he receives none of the rent – it all goes to his mother, despite being paid into an account in his name." The husband estimated his share of the property to be worth £92,000. He had proposed to sell it to his parents, pay the sum of £35,000 to his solicitors and the balance to the wife. However, he had not done so.

The order of the court in the USA was registered in the High Court in England and on 23 November 2012, the wife applied for:

1. An order that the husband be committed to prison by way of a judgment summons pursuant to s 5 of the Debtors Act 1869 as the husband had, since the order of 30 August 2011, had the means to satisfy the award and refused or neglected to do so; and

2. The issue of the writ ne exeat regno against the husband.

The principles applicable to committal applications
Mostyn J examined the history of the committal provisions, noting the changes to the procedure following the judgment in Mubarak v Mubarak [2001] 1 FLR 698. He also considered the decision in Karoonian v CMEC [2012] 3 FCR 491 in which the procedures for committal applications under the Child Support Act 1991 were held not to be compliant with the European Convention on Human Rights. Mostyn J concluded that the principles applicable to committal applications, whether under the Debtors Act or the Child Support Act, were as follows:

"Stated shortly it seems to me that the applicable principles are these:

i) s.5 requires the Court to be satisfied to the criminal standard that:

a) the Respondent has had at any point since the date of the order the means to pay the sums due under the order; and

b) has refused or neglected to pay them.

ii) The use of the present and past tenses in the phrases "either has or has had" and "and has refused or neglected, or refuses or neglects" means that the section will be satisfied if proof of both ability to pay and refusal or neglect to pay is made at any single point from the date of the order right up to the date of the hearing.

iii) The use of the alternative verbs  "refuse"  and "neglect" means that the court is not confined to proof of a positive wilful refusal to pay; the section will be equally satisfied if proof is made of a culpable indifference to the obligation to pay.

iv) It is essential that the Applicant adduces sufficient evidence to establish at least a case to answer. Generally speaking, this need not be an elaborate exercise. Proof of the order and of non-payment will likely give rise to an inference which establishes the case to answer.

v) The Respondent is not required to give evidence or to incriminate himself. In the absence of a case to answer being demonstrated the Respondent is entitled to have the application dismissed without more.

vi) If the Applicant establishes a case to answer an evidential burden shifts to the Respondent to answer it. If he fails to discharge that evidential burden then the terms of section 5 will be found proved against him or her to the requisite standard.

vii) The Applicant does not have to serve evidence prior to the hearing but if he or she fails to do so the court will be astute to ensure that the Respondent is not taken by surprise and that the hearing can proceed without unfairness to him or her.

viii) It is perfectly permissible for both the enquiry into the Respondent's means at all points since the making of the order and the enquiry into whether he or she has been guilty of a refusal or neglect to pay to take place in one conflated hearing.

ix) Provided that principles (i) – (viii) are carefully observed then the procedure will be Convention compliant.

There is only one further point I wish to make. Inevitably a good deal of the evidence is likely to be hearsay. Although the proceedings are quasi-penal they are civil proceedings nonetheless. Therefore it is my opinion that on the hearing of a judgment summons the use of hearsay is governed by the Civil Evidence Act 1995 and FPR 2010 23.2 – 23.5, rather than by ss114 – 126 Criminal Justice Act 2003."

Mostyn J took the view that the procedure was now Convention compliant and that "it remains a useful weapon in the armoury of enforcement, even if it is one that, generally speaking, should only be deployed as a measure of last resort."

The hearing before Mostyn J
Mostyn J rejected the husband's attempts to undermine the wife's valuation of the jewellery taken from the shop. Whilst he was not able to determine whether the husband had sold the items on his trip abroad or whether items had been stored abroad for safekeeping, "either directly the items themselves are, or money representing their value is, retained by the [husband] either directly or by members of his family."

Mostyn J therefore concluded that that the husband "has at all times had the means to pay the award and had refused to do so. This is a case where the scale of the default is extremely high and where the position has been seriously aggravated by the completely false evidence which has been given to me by the [husband]." For this reason, Mostyn J sentenced the husband to six months imprisonment, suspended for three months.

On the issue of the writ ne exeat regno, Mostyn J held that it was an "anachronism". He commented:

"The decision of B v B (Injunction: Jurisdiction) [1998] 1 WLR 329 establishes that after judgment an injunction restraining movement out of the jurisdiction cannot be made as a free-standing measure of enforcement. It has to be linked to another measure and must be time-limited. Accordingly, I discharge the existing writ and make a fresh injunction which will endure until the matter is returned to me pursuant to the preceding paragraph, or until the Respondent discharges his obligations, if earlier."

Finally, Mostyn J made a final charging order in respect of the London property. As both parties were represented he did not feel the need to make an interim order as a first stage. However, if the husband satisfied the award save as to £92,000 then he would have been take to have satisfied it entirely.