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Ancillary Relief Update (January 2008)

Joanna Goodall, of Mills & Reeve, reviews the latest key cases in ancillary relief and beneficial interests.

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Joanna Goodall, Barrister at Mills & Reeve LLP

The winter update considers the further interpretation of the principles enunciated in Miller v Miller; Macfarlane v Macfarlane [2006] UKHL 24, [2006]; judicial acknowledgment of the importance of pre marital agreements; proprietary estoppel and resulting trusts; the impact of subsequent increases in property prices and whether these can constitute a Barder event; the impact of confiscation orders in ancillary relief proceedings and the inter-relationship between orders in ancillary relief proceedings and bankruptcy.

CR v CR Bodey J, 22 October 2007
This case is included as further judicial interpretation of the principles enunciated in Miller v Miller; Macfarlane v Macfarlane [2006] UKHL 24, [2006].

The husband was 56 and the wife 51 by the time of the trial. After a marriage of 24 years including a period of cohabitation and the birth of 2 children, the following three features of the case were of note: the wife's considerable contribution as a wife and mother as a result of the husband's work taking him away from home; the husband's likely very considerable net future income; and insufficient capital to enable an equal division of the assets and a clean break.

In considering the extent of the wife's entitlement, Bodey J warned against the development of separate heads of claim as a result of Miller; MacFarlane, since to do otherwise would create a real risk of double counting in quantifying the extent of an award.

Whilst the wife was to share in the increase in the value of the assets between separation and trial, she was not entitled to share in the likely future increase in the value of the husband's shares nor be compensated for her future inability to benefit therefrom, since to do so would involve a complicated and disproportionate formula. By the same token, the husband would not benefit from any increase in the value of the (London) property that the wife was to retain as opposed to the property which he retained in a less vibrant property market. Recognition was provided for the husband's likely substantial ongoing income by assessing the wife's reasonable requirements on a generous basis.

The wife's claim for loss of career prospects (she had been a fashion buyer prior to the birth of the children) was not made out. Any such prospects were speculative. A wife with relatively ordinary career prospects who married a high-flyer was more than adequately compensated by the equal division of the available resources as a result of the marriage.

The wife received £9m, being an equal division of the matrimonial assets and a further £1m to reflect her reasonable requirements generously assessed.

Crossley v Crossley [2007] EWCA Civ 1491
This appeal against the case management decisions made by Bennett J highlights once again the impact of pre-marital contracts in divorce proceedings. Here, the wife, a "career divorcee" according to her second and third husbands, was wealthy in her own right with assets of £14m as compared to the husband's wealth, which was said to be £45m. The pre-marital contract entered into effectively provided for each to leave the marriage with what they brought to it. The wife sought to diminish the importance of the pre-marital agreement, alleging that the husband failed to disclose substantial assets held off-shore.

At first instance, Bennett J limited the evidence to be filed and prevented the wife from filing a questionnaire, whilst requiring her to set out her position in relation to the husband's alleged non-disclosure and gave a time estimate for the final hearing of one day.

The Court of Appeal upheld the first instance ruling, which had been based on the existence of the pre-marital contract, the fact that this was a short marriage with no children and that both parties were wealthy in their own rights through pre acquired assets. Thorpe LJ held that the judge had been right to consider the pre-marital agreement to be a "factor of magnetic importance".

Whilst it may be that the wife is able to persuade the court at trial that the husband's non-disclosure is both proved and sufficiently significant to reduce the impact it has on any award, given the circumstances of the case as enunciated by Bennett J, the writer considers that the court Is likely to uphold the pre-marital agreement even if the wife's allegations as to non disclosure are accepted.

Powell & Anor v Benney [2007] EWCA Civ 1283
This case serves as a reminder that, absent a bargain or other consensual arrangement, a promise to leave property to another on death is insufficient to establish proprietary estoppel.

The Claimants (music teachers) and the Deceased met in 1992 and became friends a year later. Shortly afterwards the Deceased lost his mother and became incapable of looking after himself properly. The Claimants provided financial and other support and friendship. In 1993, the Deceased promised that he would leave his two properties to the Claimants on death and, unbeknown to the Claimants, made a note of this 7 years later. The Claimants then used one of the properties for music lessons and Bible classes and refurbished, decluttered and soundproofed the property for this purpose. The Deceased's cousin (and next of kin) repaid the sums so expended at least in part.

The Deceased died in 2003 leaving an estate with a net value of £285,000, the bulk of which was accounted for by the two properties. The Claimants' application for transfer of the properties failed both at first instance and on appeal. By way of reminder:

1. Detriment is an essential ingredient of proprietary estoppel;
2. There must be a sufficient causal link between the assurance relied upon and the detriment asserted; and
3. The detriment must be pleaded and proved.

In the circumstances of this case, the fact that the sums expended were reimbursed at least in part; the benefit the Claimants had derived from use of the property over a ten year period; and the finding that their actions were motivated in large part out of sympathy, friendship and a desire to help the Deceased meant that the detriment needed to found a claim for proprietary estoppel had not been made out.

Loosemore v McDonnell CA (Ward, Lawrence Collins, Toulson LJJ), 15 November 2007
This case involves an analysis of monies provided within the family through the principles of resulting trust.

The Appellant's 77 year old father-in-law, Edward McDonnell required 24 hour care. As a result, Mr McDonnell provided £100,000 from the proceeds of sale of his own home to the Appellant and her then husband which, together with the proceeds of sale of the Appellant's former property, enabled purchase of a larger home in which all three could live. Mr McDonnell had signed the mortgage deed and had written to solicitors saying that he had no interest in the new property and that the £100,000 that he had provided need not be secured by way of a charge. When the Appellant and her husband's marriage broke down, Mr McDonnell intervened in divorce proceedings seeking return of his contribution. The Appellant contended that the money had been either a gift or an early inheritance. At first instance, the district judge held that the Appellant had rebutted the presumption of a resulting trust. On appeal, the circuit judge found that the monies had been a loan, despite Mr McDonnell not having argued that this was the case. The Court of Appeal restored the district judge's order. Given the facts as outlined above, Mr McDonnell could be said to have neither a legal nor beneficial interest in the property.

B v B [2007] EWHC 2472 (Fam)
In B v B the President considered whether a rise in property values following conclusion of ancillary relief proceedings would constitute a Barder event (Barder v Barder (Caluori Intervening) [1988] AC 20). An application by the wife to appeal an order made by consent out of time, the order concerned was based on a valuation of the matrimonial home at £1.25m, provided for the wife to receive half of the equity of the house and was sealed in February 2006. The husband, a property developer, intended to remortgage the home to raise the lump sum due to the wife. In fact, he was unable to raise the funds and placed the home on the market for sale 2 months later. During that time, he spent over £60,000 renovating and refurbishing the property. An offer was made of £1.6m in May 2006.

In refusing the application for leave to appeal out of time, the President considered the leading authority on changes in asset value, Cornick v Cornick [1994] 2 FLR 530, in particular. In Cornick, the wife failed to persuade the court that a rise in the value of the assets was sufficiently great to enable it to disregard the principle that "natural processes of price fluctuation, even if dramatic, do not entitle the applicant to relief". In the present case, the increase in the value of the property was a result of a combination of the rising property market and the husband's refurbishment of the home. The valuation obtained within ancillary relief proceedings made it clear that the property was in need of work.

Even if the husband had not disclosed his intentions as to refurbishment (which he had), any such non-disclosure would have been insufficient to persuade the court of the wife's application, since his efforts were foreseeable given the husband's job and the effects of any non-disclosure could have been mitigated by reasonable enquiry. Even if the renovations and the rise in the property market had not been foreseen at the time the order was made, they were foreseeable and as such were not a Barder event.

CPS v MN [2005] EWHC 2622 (Admin)
This decision is illustrative of the approach to be adopted where an "innocent" spouse to divorce proceedings seeks assets over which the Crown also has a claim as a result of criminal activity.
The husband was convicted of fraud and a confiscation order was made under s71 of the Criminal Justice Act 1988 for £571,000. Four years later, the wife petitioned for divorce. The total assets inclusive of the £571,000 due under the confiscation order totalled £1m.

Munby J, sitting simultaneously in the Administrative Court (hearing an application by the Crown Prosecution Service) and the Family Division hearing ancillary relief proceedings, held that the wife was restricted to her reasonable needs on a pre-White meaning of the term. The CPS would receive the £571,000 due under the confiscation order and the surplus assets thereafter were split 75:25 in the husband's favour to enable him to have some funds with which to start again. The extent of the difference between the sharing of the surplus can perhaps be explained by the fact that the wife was to retain the chattels, which may well have been significantly undervalued within the proceedings.

Haines v Hill and Anor [2007] EWCA Civ 1284 CA (Sir Andrew Morritt (Chancellor), Thorpe and Rix LJJ)
The Court of Appeal overturned a decision of the High Court which permitted the husband's trustee in bankruptcy to recoup £120,000 and thereby compromise the proceeds of sale of a proportion of the former matrimonial home which had been ordered to be transferred to the wife after contested ancillary relief proceedings. The first instance decision is reviewed in the Summer 2007 Update. The Court held that Parliament would not have intended that in the absence of either collusion, fraud or mistake, an award made in ancillary relief proceedings, whether after contested proceedings or by consent, would be susceptible to "automatic nullification at the suit of the trustee in bankruptcy of the husband against whom a bankruptcy order was subsequently made on his won petition" (Chancellor at 36).