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Finance and Divorce July 2013 Update

Jessica Craigs, solicitor and David Salter, Joint Head of Family Law at Mills & Reeve LLP analyse the financial remedies and divorce news and cases published in June.

Jessica Craigs, senior solicitor, and David Salter of Mills and Reeve LLP

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.

Question of solemnisation of Church of Scientology marriages to be answered in July
Permission to appeal has been granted to Ms Hodkin (the appellant in R (on the application of Hodkin and another) v Registrar-General of Births, Deaths and Marriages [2012] EWHC 3635 (Admin). 

The case concerned whether or not a Church of Scientology chapel can be registered as a place of religious worship.  The High Court's decision that it could not, meant, by consequence, that it could not be considered a registered building for the purpose of the solemnisation of marriages.  The Supreme Court hearing will take place on 18 July 2013.

Centre for Social Justice reports on 'Fractured Families'
The report revisits the state of family breakdown in Britain.  It finds an alarming 20,000 per year new lone-parent families forming with an estimated 2 million lone-parent families by the time of the next election.  Almost half of all children in the UK are no longer living with both parents by age 15.  A million children have no meaningful contact with their fathers.

The research shows the absence of fathers is linked to higher rates of teenage pregnancy, crime and disadvantage. The instability of relationships between cohabiting couples rather than married couples is addressed.  The number of cohabiting couples is estimated at 6 million which is double the number from 1996.  Cohabiting couples are three times more likely to separate by the time a child is aged five than married couples. 

The report also illustrates the cost of family breakdown to the taxpayer.  It estimates the cost as being £46m per year or £1,541 for every taxpayer in the country.

For a copy of the report, click here.

Family Justice Council publishes its response to the Government's Transforming Legal Aid consultation
The Family Justice Council, chaired by the President of the Family Division, Sir James Munby warns:

"Those changes already in place will inevitably result in a reduction in overall legal aid expenditure, as yet unevaluated and it is questionable whether further reduction will produce the overall savings sought.  Additional changes to civil legal aid, will drastically reduce its availability to the youngest and most vulnerable in our society, risking injustice and miscarriages of justice which are likely to be wholly disproportionate to the money saved."

Family mediation video launched
The Ministry of Justice has launched a video designed to explain to separating or divorcing people how mediation can help.

To watch the video, click here.

The public say child maintenance is too low
A report from NatCen Social Research on British Social Attitudes to child maintenance shows that the public think it is right that the government set minimum child maintenance payments and to enforce payments where necessary.

The report also shows that the British public believe that both the mother's and the father's income should be taken into account when considering the right level of maintenance payments.

For details of the report, click here.

Divorce 'costs £2,600 per year in expected retirement income'
The Prudential have calculated that divorce reduces average expected retirement income by around £2,600 or by as much as 16 per cent a year. 

For more details, click here.

Case law update
It has been a busy month for the Supreme Court.  It would be difficult to have missed the press coverage surrounding the decision in Prest

Prest v Petrodel Resources Limited and others [2013] UKSC 34
The case addresses whether the court has power to order the transfer of properties, registered under a corporate identity rather than in the husband's personal name, to the wife.

Mr and Mrs Prest were married in 1993 and had four children.  Mrs Prest petitioned for divorce in March 2008, Decree Nisi was pronounced in December 2008 and Decree Absolute in November 2011. Both parties had dual Nigerian and British nationality.  Mr Prest was found by the judge to have been resident in Monaco from about 2001 to date although the matrimonial home was in England.

The issue before the Supreme Court was that certain properties could not be transferred to Mrs Prest as they did not belong to Mr Prest but instead belonged to a number of companies which had their own separate legal personality. His evidence as to his connection with the various corporations was decisively rejected by Moylan J at first instance.

First instance decision
Moylan J ordered that the matrimonial home should be transferred to Mrs Prest, free of incumbrances, and that he should make a lump sum payment of £17.5m.  In addition, periodical payments at the rate of 2% of the lump sum (while it remained outstanding) plus £24,000 and school fees for each of their four children.  In addition, a costs order of £600,000 was made in Mrs Prest's favour.

Crucially, the judge ordered Mr Prest to transfer seven of the UK properties owned by Petrodel Resources Limited ("PRL") to Mrs Prest in partial satisfaction of the lump sum order.

The appeal
The three respondent companies challenged the orders made against them (which included a share of the costs order) on the ground that there was no jurisdiction to order their property to be conveyed to Mrs Prest in satisfaction of Mr Prest's judgment debt.

By majority, the Court of Appeal agreed with the companies on the basis that the corporate veil could not be pierced unless: (i) the corporate personality of the company was being abused for a purpose which was in some relevant respect improper, or (ii) on the particular facts of the case it could be shown that an asset legally owned by the company was held in trust for the husband.
The Appeal Court judges considered that Moylan J had rejected both of the above possibilities and that he ought not therefore to have made the order.

The Supreme Court decision
Sumption SCJ gave the lead judgment of the Supreme Court and held that the properties were held on bare legal trust for Mr Prest.  The beneficial interest was capable of transfer and could be used to satisfy Mrs Prest's claim.  The decision was supported by all seven Justices.

At paragraph 37 of the judgement, there was a detailed analysis of s24(1)(a) of the Matrimonial Causes Act 1973.  This provision empowers the court to order one party to the marriage to transfer to the other "property, to which the first-mentioned party is entitled, either in possession or reversion".  At first instance Moylan J had held that the word "entitled" in this section was sufficiently wide to include assets which a Husband could reasonably obtain.  This was rejected by the Supreme Court.

Sumption SCJ at paragraph 40 concludes:

"The judge [Moylan J] was entitled to take account of the husband's ownership and control of the companies and his unrestricted access to the companies' assets in assessing what his resources were for the purpose of s25(2)(a).  But he was not entitled to order the companies' assets to be transferred to the wife in satisfaction of the lump sum order simply by virtue of section 24(1)(a)… There is nothing in the Matrimonial Causes Act and nothing in its purpose or broader social context to indicate that the legislature intended to authorise the transfer by one party to the marriage to the other of property which was not his to transfer. Secondly, a transfer of this kind will ordinarily be unnecessary for the purpose of achieving a fair distribution of the assets of the marriage. Where assets belong to a company owned by one party to the marriage, the proper claims of the other can ordinarily be satisfied by directing the transfer of the shares."

It was agreed that an 'entitlement' is an existing legal right in respect of a property.  The words "in possession or reversion" show that the right in question is a proprietary right, legal or equitable – not a right which might be acquired in the future.

At paragraph 37, Sumption SCJ commented:

"Courts exercising family jurisdiction do not occupy a desert island in which general legal concepts are suspended or mean something different."

At paragraphs 16 – 36 there is a long discussion about the concept of piercing the corporate veil.  It was accepted that it was only possible to pierce the veil under the general law if it could be shown there was some relevant impropriety.  In this case there was not.

The only recourse left to the Justices was to establish that Mr Prest was beneficially entitled to the seven disputed properties by virtue of the particular circumstances in which the properties came to be vested in them.  Only then, could they constitute property to which Mr Prest was 'entitled, either in possession or reversion'.

Mrs Prest identified all seven properties in question as having the legal title vested in the relevant company, with the beneficial interest belonging to Mr Prest.  The Supreme Court agreed with this and consequently restored that part of Moylan J's order, transferring all seven properties to Mrs Prest.

At paragraph 52 of the judgment, Sumption SCJ warns:

"Whether assets legally vested in a company are beneficially owned by its controller is a highly fact-specific issue."

For an article concentrating explaining the judgment and its implications in greater detail, please see Stripping Away the Veil of Deceit: Prest v Petrodel, by John Wilson QC.

B v B [2013] EWHC 1232 (Fam)
This case is notable for Coleridge J's comments on what he describes as 'the lesser issues and assets'.

The parties began living together in 1988 and married in 1990.  The marriage broke down in 2010.  There were two children from the marriage age 17 and 13.

The family enjoyed a very high standard of living, especially in the latter years of the marriage, mainly from wealth accrued from the husband's high remuneration with a prominent Private Equity Investment house, Maison Blau.
The total assets, excluding anticipated future Maison Blau receipts, were almost exactly £40m.  If those anticipated receipts, to which a value can presently be ascribed, are included, the total was £52m.

The parties were commended for their broad agreement in respect of the division of assets (approximately £40m).  The outstanding issue before the court was which party should retain the castle, how the husband's interest in three private equity funds should be shared, the valuation of a yacht and how the lesser assets, including cars, should be dealt with. 

The hearing lasted (with reading) five days.

At paragraph 54 of his judgement, Coleridge J felt a 'mild rebuke is justified over their approach to the lesser assets'.

He goes on to say:

"As the rules now make clear, proportionality is the name of the game when costs are so hgh and court time is more and more at a premium. A much more rigorous approach to case management (especially in the field of employment of experts) is being introduced in other areas of the family justice system to save precious time and money.  This type of high value litigation cannot expect to be immune and parties to it can expect to be confronted more and more by a refusal by the court to participate in these disputes over the lesser assets and where in each case the difference is around 1% of the net value of the pot or less.  Assets falling in this category should be bundled up together and an overall value for them all agreed.  If not the court is itself likely to apply that system in a broad, even rough and ready, way."

These remarks were approved by the President of the Family Division.

UL v BK (Freezing Orders: Safeguards: Standard Examples) [2013] EWHC 1735
Mr Justice Mostyn provides clear guidance on when an ex parte order should be made and how freezing and search orders should be drafted.

The parties were married in France in July 1986.  The wife is now aged 57 and the husband, 52. They have a son, now aged 26.  In 1990 a property in Marbella, which became the subject of a freezing injunction, was bought for about £800,000.  In 2000, the family moved to England.  Both parties had adulterous relationships and by 2010 they were estranged, if not actually separated.

On 7 February 2013, the wife issued her divorce petition.  On 21 February 2013, she obtained an ex parte freezing order.

Mr Justice Mostyn was critical not only of the order being made but also of the wife's candour. 

Freezing orders
At paragraph 4 he sums up in eight sub-paragraphs quite how the freezing order failed to include the standard safeguards and as a consequence, the husband had assets, in addition to the Marbella property, frozen up to £20m.

Mostyn J examines the power the court has to make a freezing injunction at paragraphs 9-15 and whether there is a difference in the test to be applied when ruling on an application for a freezing injunction depending on whether the application is made under s37 Supreme Court Act 1981 or s37 Matrimonial Causes Act 1973.  He concludes that there is in fact no difference between the two tests and it would be strange if there were (Para 15). 

At paragraph 17, Mostyn J summarises the principles which govern a freezing application.  He states:

"…those principles, as summarised in the White Book, require an applicant to put forward an appropriately strong case, supported by evidence of objective faces (rather than mere expressions of suspicion or anxiety), that the respondent owned or had an interest in specified assets and that there was a real risk of their dissipation."

He is critical of the wife's statement which is vague about the details of her suspicion (para 65) and refers to FPR PD22A para 4.3(b) which gives guidance on what should be contained in an affidavit or witness statement.

At paragraphs 35-39 Mostyn J examines the principle of whether the application for a freezing injunction should be made with the respondent present or not.  He states (at paragraph 35):

"But freezing and search orders are almost invariably made ex parte, and, as such, are a violation of the elementary rule of natural justice audi alteram partem". Instead, he encourages practitioners to consider short notice. "In these days of mobile phones and emails it is almost always possible to give at least informal notice of an application." 

Again, he was critical of the wife for not giving such notice.

Appended to his judgement are standard examples of freezing orders and search orders which include the omissions noted on the wife's application.  These have been approved by the President.  If there is a flagrant disregard to the principles, Mostyn J recites the decision in B v A [2012] EWHC 3127 (Fam) at para 110:

"It seems to me that if such failures are to be avoided in the future there is a need for judges:

(i) to refuse to make without notice orders if the established principles and procedures are not applied…and
(ii) to treat such failures as negligent and thus as a foundation for the exercise of discretion to make a wasted costs order."

Illegitimately obtained documents
At paragraphs 54-56, Mostyn J examines and revisits the principles laid down in Tchenguiz & Ors v Imerman [2010] EWCA Civ 908.  Again, he is critical of the wife and her failure to disclose that some of the documents used to support her freezing application were derived from accessing her husband's safe and the fact she omitted this detail from her statement (para 59 & 60).

The judge declined to re-grant the injunction and accepted the husband's undertaking which was offered. At paragraph 76, Mostyn J states:

"Had the wife given a fully explained account of the circumstances and context of the threats; fulfilled her duty of candour; and complied with the applicable principles and safeguards, it is distinctly possible that a freezing/preservation order over(at least) the Marbella property would have been justified."

T v M [2013] EWHC 1585 (Fam)
The husband and wife were married for a period of 16 years ending in 2005.  They had three children together, two of whom were over 18, the youngest aged 12. The parties separated in 2005 and both have formed new relationships.

In September 2010, District Judge Hess heard the ancillary relief proceedings.  The hearing lasted some four days, three of which were spent with the wife giving evidence.  A lengthy judgment was given and a supplemental judgment to deal with the precise wording of the order in November 2010.

Following the order being made, the husband issued an application to vary periodical payments in March 2011.  Counsel for the wife submitted that this was one of the shortest periods of time after which such an application had been brought following an order being made.  Coleridge J at paragraph 4 said:

"It must give the court the singular impression that the husband was completely disenchanted with the original order and, from the moment it was made, was looking for ways to argue for a reduction."

The original order awarded the wife periodical payments of €7,250 per month plus 35% of the husband's net bonus to the extent that her overall maintenance entitlement did not exceed €192,000 per annum. In addition the husband was to pay child maintenance of €1000 per month plus school fees and tertiary education fees.

In July 2011 the wife sought to strike out the application on the basis that it had no chance of success. The District Judge agreed with the wife and the application was struck out.  The husband appealed.

The husband claimed that the wife was earning significantly more than she disclosed in the original proceedings and that if a full investigation took place the court would conclude that a downwards variation of the order was required. The husband relied on the fact that the wife was able to relieve him of his mortgage obligation on the matrimonial property which was €1.5m which would necessitate a high income level.

The appeal was dismissed. Coleridge J determined that it was impossible for the husband to succeed in establishing that the Judge was plainly wrong in finding that no useful purpose would be served by re-opening the matter. The judge had evaluated the issue of the wife's earning capacity carefully and was therefore right to come to the conclusion that the husband should not be allowed to go ahead with an application to vary, issued only 4 months after the original order.

At paragraph 24 he concludes:

"I do not think that, against the background of the costs which have been spent to date, it is a proper use of the court's time or a proper use of the court process to allow this case to proceed, but I would not go as far as to say it amounts to abuse. It does not, it seems to me, satisfy the very high threshold that is imported into an application of this kind and I cannot find fault in the end with the district judge disposing of the case in the way that he did. Accordingly, the appeal will be dismissed."