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Finance and Divorce February 2014 Update

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

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

This update is provided 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.

Sir James Munby issues guidance to improve transparency in the courts
The President of the Family Division published new guidance on the practice in relation to the publication of judgments in the family courts and the Court of Protection.  The guidance applies to both the High Court and county courts.

The President distinguished between two classes of judgment: those that the judge must ordinarily allow to be published and those that may be published.

Those that must ordinarily be published are judgments where the judge concludes that publication would be in the public interest and whether or not a request has been made by a party or the media.

In other cases, the starting point is that permission may be given for the judgment to be published whenever a party or an accredited member of the media applies for an order permitting publication, and the judge concludes that permission for the judgment to be published should be given.

Click here for a copy of the guidance.

Plan to raise court fees condemned by internal government review
The Regulatory Policy Committee ("RPC") has published a rare 'red report' criticising the plans backed by the Justice Secretary, Chris Grayling.

The Ministry of Justice assessed the impact of "enhanced court fees" including an uplift in costs for obtaining a divorce and other civil claims.  The proposed increase was an effort to generate an additional £190m p.a. for the struggling court service.

The RPC said that: "the impact assessment lacked clarity.  The Ministry of Justice has not explained sufficiently the outcome the proposal is intended to achieve – whether the proposal will result in the court service generating an adequate level of revenue to meet its costs, or whether a surplus will be generated".

Publication of a red notice is extremely rare and is likely to have been an embarrassment to Mr.Grayling who had promised to deliver big savings from his department.

For a copy of the full report click here.

Fee-charging McKenzie Friends to be investigated
The Legal Services Consumer panel is to focus its attention on the emerging market of McKenzie Friends who are charging for their services.

Concerns arise that these individuals may provide poor advice, offer little in the way of consumer protection, prey on the vulnerable and promote their own views.  The counter-argument is that they offer help to litigants in person and some are very competent and ethical.

The Panel's starting point is to recognise that fee-charging McKenzie Friends are a feature of the current legal system and the lack of knowledge in this area needs to be addressed.  Over the next few months the situation will be reviewed in order to ascertain the current picture.

Case law update
R v R and Others [2013] EWHC 4244 (Fam)
Judgment by Sir James Munby continuing an injunction against the husband in financial remedy proceedings by which he was restrained from competing with the family company of which he was the shadow director.

On 1 November 2013 Mr Justice Wood made a freezing order.  The return date was before the President of the Family Division.  The parties agreed that the freezing order should remain in place, subject to certain adjustments.

The President decided one issue (on which he handed down judgment) in relation to the successful family business, which was a matrimonial asset run by both the husband and wife throughout their marriage.

Paragraph 20 of the freezing order was an injunction against the husband from directly or indirectly engaging in any business that competed with a specified company or soliciting customers from, or attempting to sell, licence or provide similar services to any customers or client of the family company.

The wife alleged that the husband was deliberately competing with the family business in an attempt to depreciate the value of the matrimonial asset.

The President was not troubled by the factual foundation of the wife's case but whether there was a legal basis for the continuation of the injunction.  In particular whether the language of the order and that of s.37(2) of the Matrimonial Causes Act 1973 are not compatible and therefore the injunction shall fall to be made under s.37 of the Senior Courts Act 1981.

The court found for the wife on the following basis:

[paragraph 11] The husband was, on his own admission, a shadow director of the company.  As such he owed a fiduciary duty to the company to act in the interests of the company and not to act in his own separate interests.

[paragraph 12] As such, it would be a breach of his fiduciary duty to set up and operate a competing business.

[paragraph 13] Any other corporate vehicle set up by the husband that did not compete with the family business was not in breach of the injunction, nor would the injunction fetter the operation of the company.  If the company did compete, it would be a breach of the injunction. Therefore, paragraph 20 of the order remained in force..

Met v Hat [2013] EWHC 4247 (Fam)
Application by the wife for interim financial provision for herself and the two children in proceedings in which the parties disputed the validity of a non-proceedings divorce, in the husband's home country, entitled to recognition in this country.

At paragraph 1 of the judgment, Mr Justice Mostyn criticises the parties for failing to compromise the issue and taking up 'valuable High Court time' debating the scale of support the wife should receive for a period of two months: the next hearing being on 21 February 2014.

The husband was a foreign national, aged 62.  He had four wives by virtue of polygamy being allowed in his home country.  This case involved his fourth  wife whom he married in 1999.

In the 1990s the parties enjoyed a high standard of living.  They were able to purchase a property in the UK; visit the USA where their children were born.  They were able to spend some of the time in England but they lived predominantly in the husband's home country. Mostyn J found (at paragraph 3) that the husband's domicile was his home country and the wife's domicile of origin was Egypt and domicile of choice was possibly her husband's home country.

In 2011 the relationship broke down.  The issue around the standard of living between 2006 and 2011 remained unknown.  Mostyn J proceeded on the basis that it was high, possibly very high.

On 29 March 2012, by a triple declaration of talaq in the husband's home country, the parties were divorced.  The wife moved permanently to England on 22 April 2011 (less than one year before the divorce).  The wife purchased a villa in Cairo for £2.3m in 2012 – this asset was assessed as part of the wife's claim.

On 15 February 2012 the wife instructed English lawyers.  Two days later, the husband made a single declaration of talaq in his home country.  The wife then field her divorce petition on 12 March 2012 which stated that both the husband and wife were "habitually resident" in England and Wales.

The day before he was actually served with the petition, he made a triple declaration of talaq (29 March 2012).

Therefore, according to the expert, on 29 March 2012 there was a non-proceedings divorce (i.e. divorce without involvement of the court).  s.46(2) of the Family Law Act 1986 states that non-proceedings divorce will be entitled to recognition if, at the relevant date:

(i) each party to the marriage was domiciled in…[the husband's home country]; or

(ii)  either party to the marriage was domiciled in …[the husband's home country] …and the other party was domiciled in a country under whose law the divorce…is recognised as valid; and

(iii)  neither party to the marriage was habitually residence in the UK throughout the period of one year immediately preceding…[29 March 2012].

Therefore recognition would depend on it being shown that both parties were domiciled in the husband's home country in March 2012; or, that the husband was domiciled there and the wife was domiciled in a country where this bare talaq was recognised.  The expert confirmed that the wife's domicile of origin did recognise the bare talaq.  Consequently, it seems that there was a strong case for the non-proceedings divorce to be recognised in the English court.

If it was recognised the wife had no right to apply for relief under Part III of the Matrimonial and Family Proceedings Act 1984 as it is only confined to cases where there has been a foreign divorce which derives from proceedings.

Due to the uncertainty that the wife was in fact entitled to pursue divorce proceedings here (the matter due for determination on 21 February 2014) Mostyn J did not award maintenance pending suit in the wife's favour.

Child maintenance was ordered at the rate of £20,000 per month (the wife had sought £38,000 per month) and costs in the wife's favour of £50,000. 

S v S [2014] EWHC 7 (Fam)
Application for approval of a consent order intending to give effect to an arbitral award following arbitration conducted under the Institute of Family Law Arbitrators ("IFLA") scheme.

The parties were married in 1986 and separated in 2012.  They had one child, aged 19. Decree Nisi (on the wife's petition) was granted early in 2013.  In June 2013 the parties signed the IFLA's Form ARB1, agreeing to arbitration in accordance with the Rules by Mr Gavin Smith (the arbitrator) in relation to their claims for ancillary relief and thereby binding themselves to accept his award.

The arbitrator's Final Award is dated 7 November 2013.  On 9 December 2013 the parties applied to Guildford County Court seeking approval of the consent order.

Their D81s showed matrimonial assets to be worth in excess of £1.5m but less than £2m.

At paragraphs 7 – 15 the President examines the progression of the law concerning agreements reached in financial remedy proceedings.  Specifically he refers to the following:

[paragraph 11] the concept of the 'magnetic factor' – the feature(s) or factor(s) which in the particular case are of 'magnetic importance' in influencing or determining the outcome (White v White [1999] Fam 304, Crossley v Crossley [2007] EWCA Civ 1491).

[paragraph 12] mediation and other forms of alternative dispute resolution being well established as a means of resolving financial disputes on divorce.
[paragraph 13] the court's abbreviated processes to facilitate the appropriately simple and speedy judicial approval of such agreements.

[paragraph 14] the court's sanctioning of the 'notice to show cause' procedure and the respect a court should give for individual autonomy.

The President then examined the future of an arbitration award made under the IFLA Scheme. He stated at paragraph 18 that the starting point in the process of approving a consent order should be that where the parties have bound themselves (by signing a Form ARB1) to accept an arbitral award this generated a single magnetic favour of determinative importance.

At paragraph 21 he says:

"The judge will not need to play the detective unless something leaps off the page to indicate that something has gone so seriously wrong in the arbitral process as fundamentally to vitiate the arbitral award.  Although recognising that the judge is not a rubber stamp, the combination of (a) the fact that the parties have agreed to be bound by the arbitral award, (b) the fact of the arbitral award and (c) the fact that the parties are putting the matter before the court by consent, means that it can only be in the rarest of cases that it will be appropriate for the judge to do other than approve the order."

Where a party seeks to resile from the arbitral award the President stated that the other party's remedy is to apply to the court using the 'notice to show cause' procedure.  The court would adopt an appropriately robust approach taking into account the arbitral award.

Parr v Parr [2013] EWHC 4105 (Fam)
The Appellant husband appealed part of an order made by DJ White on 20 March 2013.

The order made in financial remedy proceedings provided for:

(i) the former matrimonial home to be sold; wife to receive £403,561 + 50% of any excess n the event that the property sold for more than £670,000 gross;

(ii) the husband was to retain (i) an American property in which there was negative equity and (ii) an investment property in the UK;

(iii) the wife to have a pension share equivalent to 81.3% of the husband's pension;

(iv) the wife to have periodical payments on a joint lives basis at the rate of £3,750 pcm; and

(v) the wife to be paid a sum equal to 25% of all the husband's annual bonuses (net of tax and NI) also on a joint lives basis.

At the time of appeal, the FMH was due to sell for more than expected and the wife was to receive £454,000 and the husband £50,000.  The final capital position (including the pension) was capital to the wife of £967,170 and £250,362 to the husband.

The husband appealed the order for periodical payments on a joint lives basis seeking substitution of a non-extendable term until he reached 60 and the order for the payment of 25% of his annual bonus.  He sought this to removed entirely.

Mostyn J gave permission in relation to the award of 25% of the husband's bonuses on a joint lives basis.

The husband's remuneration package for the three years he had been working at the bank had been gross salary of £250,000 and a non-guaranteed bonus made up of cash and deferred cash and shares of about £200,000.

At paragraph 38 The Honourable Mrs Justice Eleanor King states that she felt the District Judge made an error in respect of identifying a figure that would represent the wife's maximum reasonable maintenance taking into account all the circumstances of the case i.e. a cap.

The appeal was therefore allowed to the extent that a cap was not set on the amount the husband should pay beyond 25% of his net bonus.  A cap of £20,000 was attributed to the husband's bonus payable to the wife.

Shield v Shield [2014] EWHC 23 (Fam)
On 5 March 2013, District Judge Hess ordered the hearing of the preliminary issue within financial remedy proceedings as follows:

"Whether the Respondent and/or the Applicant's shareholdings in R A Shield Holdings Limited ("RASH") are held on trust for the Intervenor, and if so on what terms."

The parties involved were the Applicant wife (Mrs Susan Shield), the Respondent husband (Mr Richard Shield) and the Intervenor (Mr Christopher Shield) who was the parties' son.

The husband was aged 72; the wife 69.  They were married in 1969 and had four children:  Alexandra (40), Nicola (39), Christopher (36) and Fiona (30).  The wife and Christopher stood to gain or lose in respect of the preliminary issue, since the husband did not contest Christopher's case that he held his RASH shares on behalf of Christopher.

The husband failed to attend the 9 day preliminary hearing and the fact that he did not give oral evidence and was not subject to cross-examination weighed against him.

The wife's form E (dated 1 November 2012) stated that she held 1,660 B shares in RASH.  She was not able to attribute a value to them.  She made no reference to any trust, agreement or understanding that she held those shares for Christopher.

The husband's form E (dated 30 October 2012) stated:

"I own 50.22% of the "A" ordinary shares in RASH.  For the reasons stated at box 4.3 below, I consider these are held on trust for Chris at my death."

The RASH shares were not valued for the purpose of the preliminary issue hearing.  However, they were put by both sides as being worth in the region of tens of millions.  The RASH shares were the most significant asset in the marriage.  If the husband were to succeed in establishing that he held the shares in RASH for Christopher then those shares would not be available to the court when it came to exercise its depository powers.

The husband and Christopher's case was that they had agreed the husband would have a life interest in the shares with the remainder to Christopher.  The judge therefore had to determine whether or not those shares were available as a resource of the husband's or whether they were irrevocably committed to Christopher.

In oral evidence, the wife accepted that Christopher would inherit the husband's RASH shares (this was supported by his will and codicils) but their value on the date of his death was the key question.  She asserted that essentially when the shares did pass to Christopher the value could have greatly reduced. She said that she thought Christopher was being opportunistic in supporting the husband's case that he would leave his shares to him.

The principal argument deployed by Christopher was that the husband's shares in RASH were held subject to a common intention constructive trust in favour of the husband as to the life interest and to Christopher in remainder.  The judge concluded that it was clear that the beneficial interest in the husband's share remained with the husband.  Unless otherwise dealt with they would remain available to any creditors and they would form part of his estate on his death.

The alternative argument relied upon the doctrine of proprietary estoppel.  The underlying principle being that it would be unconscionable for the maker of the assurance not to give effect to his promise.  The judge did not support this argument as both Christopher and the husband accepted and acted upon the tax advice that they received and as such did not reach any binding agreement about the husband's shares.

Accordingly, Christopher's claim for a declaration that the shares were held on trust for him failed.

In his concluding remarks Mr Francis QC said:

"I know that this is of course not the end of the matter, it is simply the end of the preliminary issue.  I observe that, especially within the context of a family squabble, it is a matter of deep regret that a scheme could not have been agreed whereby Christopher would be rewarded in due course with the shares that he expected to receive, whilst providing his parents with resources during their lifetime…Had Christopher failed to save and re-build [the company], then this phase of this bitter litigation would not of course have occurred, for there would have been no shares to argue over in the divorce between the Husband and Wife."