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Finance and Divorce July 2014 Update

Jessica Craigs, senior solicitor at Mills & Reeve LLP, reviews the latest developments and judgments relating to marriage, divorce and financial remedies.

Jessica Craigs, senior solicitor, Mills & Reeve LLP

Jessica Craigs, Senior Solicitor, Mills & Reeve LLP

This update is provided into two parts:

  1. News in brief
  2. Case law update.

News in brief

5% increase in marriages from last year
The ONS has published provisional figures showing that marriages in England and Wales increased by 5.3% in 2012 from the 2011 figures.  2009 showed a low number of marriages but since that date, the trend appears to be increasing.

For the full statistics click here.

Public experience of the family justice system is published by the MoJ
The Ministry of Justice has published findings of its survey into public attitudes and experiences of the family justice system, including mediation.  Approximately 35,000 adults were interviewed.  About a quarter of these were asked questions about understanding of and confidence in the family justice system.

Of those who had been involved in the family justice system, most reported positively on their experiences. Around half of adults were aware of the family justice system and mediation as an alternative to court.

The analysis is here. claims MoJ underspends on mediation by £14m
Marc Lopatin of says that in 2013/14 the MoJ made available an additional £10m to fund family mediation.   The estimated spend for 2013/14 is £9,489,559 (based on current average figures) and therefore the underspend is approximately £4,233,713.  Taking into account the additional funds available, the total estimated underspend is £14.2m.

"Power couple" battle over hedge fund
The Independent reported on the well known 'power-couple' divorcing.  Sir Chris Hohn has been accused of underestimating the value of The Children's Investment Fund during divorce proceedings. 

If Mrs Hohn is successful in proving that the fund is worth what she estimates, it could be the biggest payout recorded.  A ten day trial is listed.

For a full report click here.

Baroness Deech's Divorce (Financial Provision) Bill receives second reading
On 27 June 2014, the Divorce (Financial Provision) Bill, a private member's bill, introduced in the House of Lords by Baroness Deech in February 2014, received its second reading and was committed to a committee of the whole house.

Baroness Deech says that it is urgent for Parliament to revisit the fundamental law governing financial provision for four principal reasons:

  1. The law is uncertain. Decisions used to be based mainly on "need". Equality of the spouses then became a feature in judgments; and recent decisions have added consideration of compensation, and sharing the fruits of partnership, while statutory amendments provide for pension division and a clean break between the couple, if possible.  
  2. The leading judgments inevitably arise from "big money" cases that go to appeal, and are not necessarily helpful for low income families. We now have a largely judge-made law, which bears little resemblance to the statute, and there has been no public or democratic input. The wide exercise of judicial discretion, careful and sensitive though it is, leads to unpredictability and uncertainty, and therefore militates against mediation and settlement out of court. Judges differ with each other, and decisions conflict as new principles are enunciated.
  3. Legal aid has been removed from this area of the law. Many parties of modest means are left unrepresented and have to attempt to litigate on their own in emotional circumstances, with no understandable or settled principles to guide them in dividing assets and income. Judges are having to intervene, which is not their task, and brings delay. 
  4. Organisations such as Resolution and the Centre for Social Justice have called for reform over the years, but without result. A recent Law Commission report recommended that prenuptial agreements be binding, with certain exceptions and they are continuing work on financial provision which they estimate will take years to complete.

The Bill, as introduced, is here. The second reading debate can be read here.

Government figures show a collapse in mediation attendance
National Family Mediation (NFM), England and Wales' largest provider of family mediation Government says that 'ministers must ensure nothing is off limits as they consider how to reverse the trend' after a report shows a collapse in mediation. NFM suggest that the government now make it free for people to attend the initial mediation session that became compulsory from 22 April 2014.

Mediation assessments, starts and successful agreements all plummeted in 2013/14 compared with previous years according to official figures issued this week, following cuts in legal aid introduced in April 2013.

Jane Robey, NFM's Chief Executive, said:

"The government says it wants more people to go to mediation rather than clogging up the family courts, yet its policies of the past two years have achieved precisely the opposite. There are huge increases in the numbers of people representing themselves in courts following legal aid cuts, and now these figures show a collapse in the number of people going to mediation.

"It's an embarrassment for Government Ministers, and one they have to address if they are serious about mediation.

"With a multi-million pound underspend, Ministers could now make it free to attend the initial MIAM (Mediation Information & Assessment Meeting). They could and should go further to support professional mediation and ensure it succeeds."

The Family Mediation Task Force has since reported. Its report can be read here.

10 December 2014 set as date for conversion of civil partnership to marriage
Pink News reported that the Government will announce that the first date couples already in civil partnerships can convert to marriage will be 10 December 2014, but that civil partnerships will not be extended to include straight couples. [This has now been officially confirmed.]

For a copy of the report, click here.

Pilot scheme for accelerated first appointment procedure in FR proceedings
The scheme is designed to avoid the need to physically attend the First Appointment if directions are agreed.  The court must be satisfied that the steps agreed are appropriate and in line with the court's overriding objective.

Case law update

AM v SS [2013] EWHC 4380 (Fam)
An application brought by the wife for a Legal Services Order during heavily contested financial remedy proceedings.

The husband was aged 45 and wife, 28. They married in October 2007 and had one child, aged nearly 5.  The marriage ended in 2009.  Since that date, the parties have been involved in litigation in England.  The litigation involved the divorce suit, and following the husband's application for a stay or a dismissal of the petition in 2010, financial remedy proceedings.

The husband had spent nearly £200,000 in legal fees; the wife, nearly £250,000.  The husband stated that the legal spend exceeded the matrimonial resources; the wife's case was that the spend was a small percentage of the husband's wealth.

On 11 April 2011, an order for maintenance pending suit was made at the rate of £8,000 per month.  On 5 August 2011, this was varied to £5,500 per month and the arrears fixed at £10,200. In December 2012, the wife made an application for an order for maintenance pending suit in respect of her costs.  At the date of her statement, she owed her current solicitors £39,000 and her costs to the conclusion of a preliminary two day hearing, were estimated at £120,000.

On 27 February 2013, Deputy District Judge Stanton awarded a sum of £60,000.  The net sum the wife received, after payment to her solicitors, was £21,000.

The two day hearing was adjourned.  There was an FDR on 12 June 2013, a number of directions hearings and a five day final hearing listed for March 2014.  At that time, the wife owed her solicitors £102,000.  The amount the wife sought when before Mr Justice Moylan was £122,000.  The total sum she therefore needed by way of a Legal Services Order was broadly, £226,000.
The wife's case was that the parties lived a very lavish lifestyle and she had no liquid resources of her own to meet her legal fees.

The case featured a number of properties.  The wife asserted that two properties at St John's Wood and Cairo were gifted to the couple on marriage.  In addition, the wife said that the husband owned a property in Acton and a flat in Maida Vale.  In addition, the wife believed that the husband was financially supported by his father and received significant sums from him.

By contrast, the husband asserted that his only significant asset was the Maida Vale property.  The St John's Wood property was vested in the name of a company based in the British Virgin Islands.  That company was in turn owned by a Leichtenstein Anstalt of which the husband's father was the sole beneficiary.  This proposition was supported by a statement provided by the directors of a trust being the corporate director of the Anstalt.

The husband stated that the Cairo property belonged to his father.  The Acton property (on the husband's case) indirectly belonged to his sister.

The husband accepted that he was assisted by his father by being able to use the London and Egyptian properties.  He also accepted that he received a salary from his father for working in one of his companies and his father assisted with the payment of legal fees.  He rejected the proposal that his father would make funds available to him to enable him to meet any Legal Services Order which might be made by the court.

At paragraphs 19 – 21, Mr Justice Moylan reviews s22ZA and s22ZB of the Matrimonial Causes Act 1973.

With reference to s22ZB(1)(a) namely, financial resources on the evidence before the judge, he stated that the husband was entitled to the equity in the Maida Vale property.  The other properties he was less convinced about and felt the husband provided better evidence as to their ownership. The judge examined the other financial support provided by the husband's father and concluded that he had resources available to meet a Legal Services Order.

Turning to s22ZA, namely, whether the judge was satisfied that without a Legal Services Order the wife would not reasonably be able to obtain appropriate legal services for the purposes of the proceedings, Mr Justice Moylan concluded that the wife was not in a position to secure a loan for such services.  He was also satisfied that she was unlikely to obtain a charge over assets recovered as it was not clear whether she would recover any assets nor did she have family support to meet her legal fees.

The judge expressed concern over proportionality and the balancing act that was required to ensure the wife was on equal footing given the complexity of the legal issues involved.  Consequently, he made an order that the Maida Vale property be charged to £150,000 of which £100,000 was to be used in the respect of the wife's costs not currently incurred to the conclusion of the hearing and £50,000 to be used in respect of the costs incurred to date.

Jefferson v O'Connor [2014] EWCA Civ 38

This judgment was made a few months ago. Ms Jefferson, the Petitioner wife issued the first proceedings in time in England in March 2010.  In December 2010, Mr O'Connor, the respondent husband arranged for divorce proceedings by mutual consent to be issued in the Spanish Court.

On 2 April 2012, HH Judge Booth decided that the English proceedings should be stayed (and, as a result, dismissed) on the primary ground that the parties had entered into an agreement on 23 September 2010 (the 'Agreement') whereby the wife undertook that she had abandoned the English divorce proceedings, so that she was estopped from arguing that those proceedings remained extant.

Counsel for the wife submitted that the effect of the Council Regulation is to prevent the court implementing any agreement by the parties as to the appropriate jurisdiction for divorce proceedings.  The effect of articles 16 and 19 (reviewed at paragraphs 26 and 27 of the judgment) give jurisdiction to the court first seised of the matter.

At paragraph 39 of the judgment, Lord Justice Vos concluded that Article 19 prohibited the proceedings being stayed on the basis of the Agreement.  HH Judge Booth should have concluded that the provisions of Article 19 of the Council Regulation were applicable and could not be overridden by the Agreement.

The wife's English divorce was consequently reinstated. 

Hope v Krecji [2014] EWCA Civ 796
The appellant company (Damsonetti Holdings - a company owned by a Jersey trust) sought to argue that Mostyn J's judgment had already been doubted by the Court of Appeal in Prest v Petrodel Resources.  The notice of appeal was lodged before the Supreme Court handed down their judgment in Prest.  Indeed, one of the reasons put forward for the delay in filing the notice of appeal was said to be the then forthcoming Court of Appeal judgment in Prest which was handed down on 26 October 2012. The appeal was lodged some six weeks after judgment in Prest was handed down.

The company needed permission to appeal out of time.  They based their case on the need for the court, in light of Prest, to have an opportunity to reconsider what they alleged was an illegitimate order made by Mostyn J.  They argued that the judge had incorrectly held that the trust was beneficially entitled to the property owned by Damsonetti Holdings; that the property ordered to be transferred was, as a matter of law, beneficially owned by Damsonetti Holdings; and that the trust was only entitled to ownership of the shares in Damsonetti Holdings and had no interest in the company's assets. It was said that there was no evidence before the judge in relation to the purchase of the properties upon which the judge could have asserted that the relevant assets were held by Damsonetti Holdings on trust for the trust, or as nominee for the trust; and that there were no reasons given by the judge for his assertion that Damsonetti Holdngs was not a legitimate company or that it had an inappropriate corporate structure.  They contended that the judge had fallen into error, as has been demonstrated by the Prest case, in considering that the Family Division could make orders directly or indirectly transferring the company's assets simply on the basis that the trust was the owner or the controller of the company and where there were no adverse third parties whose position might be prejudiced.

Permission to appeal was refused. 

Lady Justice Gloster noted that, in seeking permission to appeal substantially out of time, an appellant requires the permission of the court to file out of time, satisfy the court that there was a reasonable prospect of success and that they should be released from the time sanctions imposed on any appeal.
She concluded that the decision not to appeal "in time" had been a deliberate decision taken in the knowledge that Prest had been under appeal.  It would have perhaps been better, she said, for Damsonetti Holdings to have lodged an appellant's notice in time and then to have requested the court to stay the appeal pending the result of Prest.

More importantly though, Gloster LJ highlighted that the company was in breach of an injunction which sought to enforce orders relating to the transfer of the Mercedes, number plate and Harley Davidson (all of which were now outside of the jurisdiction) to the wife.  It was clear on the authorities, she said, that, despite the fact that those orders were under appeal or were being sought to be appealed, Damsonetti Holdings had had an obligation to comply with the orders of the court. It had not done so and was in contempt of court as neither the assets nor funds representing the value of the assets at the time they were removed from the jurisdiction had been paid either to the wife or into court.

Finally, Gloster LJ concluded that Prest made clear that if the evidence is available, the court can come to the conclusion that assets legally vested in a company are beneficially owned by its controller. On the facts here, she said, Mostyn J had come to the conclusion (which had not been appealed nor was an appeal proposed) that the Krejci family trust and its assets, including Damsonetti Holdings, were in effect Mr Krejci, the husband's, alter ego, and the assets were in truth his.  And although Damsonetti Holdings argued that there was no possible basis for supporting that conclusion, the truth was, she said, the husband's failure to make meaningful disclosure made that a very unattractive argument.  In the absence of the evidence the husband had been directed by the court to provide, Gloster LJ held that Mostyn J had been perfectly entitled to come to the conclusion that the trust assets, the shares in the company, and indeed Damsonetti Holdings' assets, were, notwithstanding that they had been bought on mortgage, beneficially owned by the husband.

Harb v HRH Prince Abdul Aziz Bin Fahd Abdul Aziz [2014] EWHC 1807
In brief: A head of state who dies in office enjoys state immunity only in respect of his or her official functions or acts.  Therefore, post-death, state immunity cannot be claimed in order to defeat proceedings that related to the private acts of the head of state. 

The claimant, Mrs Harb, alleges that in 1968 she secretly married King Fahd, the late King of Saudi Arabia.  She claims that, in 1970, he promised to provide for her financially for the rest of her life and that he did so until he suffered a stroke in 1995.  She initiated proceedings in London against King Fahd in 2004, claiming a lump sum of £12million and two properties which she said had been promised to her by Prince Abdul Aziz, King Fahd's son, on behalf of his father.  The claim was dismissed by the High Court because of state immunity.  State immunity is the legal principle that heads of sovereign states are exempt from the legal jurisdiction of any other countries (s.20(1) State Immunity Act 1978 and s.2 Diplomatic Privileges Act 1964). 

Mrs Harb appealed but before the appeal could be heard, King Fahd died and the proceedings against him came to an end.  In 2009, Mrs Harb re-commenced her proceedings, this time against Prince Abdul Aziz, basically for breach of contract.  Prince Abdul Aziz applied for an order declaring that the court had no jurisdiction to try the claim on the grounds that it was barred by the state immunity conferred on a head of state under the State Immunity Act 1978.  It had already been agreed that the financial agreement allegedly made (if found to have been made) would be a private act rather than an exercise of King Fahd's official functions. 

Had King Fahd still been alive (and still King of Saudi Arabia), then state immunity would almost have certainly applied to him in relation to these claims.  This is because state immunity in respect of a living head of state does not apply only to things done by that person in an official capacity but to all things (i.e. it includes that person's personal life) (Mighell v Sultan of Johore [1893] 1 QB 149).  However, the immunity ceases when the person ceases being the head of state during their lifetime (e.g. they abdicate) – the state immunity is just for acts done in an official capacity.   This case confirms that when a head of state dies in office, the state immunity they have been afforded in life, in death only extends to their official functions and not private or personal matters.  Mrs Harb is now able to proceed with her claim and no doubt there will be litigation reported over the coming months and years.