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Finance & Divorce Update November 2014

Jessica Craigs, senior solicitor of Mills & Reeve LLP analyses the financial remedies and divorce news and cases published by Family Law Week during October

Jessica Craigs, Senior Solicitor of Mills & Reeve LLP

This update is provided into two parts:

1 News in brief

2 Case law update


£19 million legal bill!
The Telegraph reports that after years of intense litigation, Dr Martin Coward faces the reportedly, most expensive divorce bill in Britain after losing his appeal over control of the hedge fund founded with his ex-wife DWP.

Click here for the full article.

Gingerbread reports drop in child maintenance claims due to charges
Government figures show that 3,700 fewer parents applied to the new Child Maintenance Service ("CMS") in August than in May this year. 

Speculation as to whether this is a direct consequence of the new £20 application fee has arisen. 

For the full press release from Gingerbread click here

Backdated marriage certificates for converting civil partners
From 10th December 2014 couples in England and Wales will be able to convert their civil partnerships to marriages.

The marriage certificate will be dated as at registration of civil partnership rather than receiving a conversion certificate as previously advised.

National Family Mediation (NFM) calls for solicitor-mediator collaboration
The chief executive of NFM (Jane Robey) has called for closer practical collaboration between lawyers and family mediators. 

She outlines three initial proposals for closer mediator–solicitor collaboration:

1.  Lawyers seeing both parties
Referring to the recent recommendations of the government's Family Mediation Task Force she says:

"One of the recommendations provides an opportunity for us to do something different and that is for a lawyer to be able to see both parties who have been in mediation. I want to work together with the legal profession to achieve that change. I appreciate there are regulations but I think it is worth looking at. It will help us all provide more holistic services for families, it will keep the whole families interests and needs in the frame and will call time on adversarial proceedings."

2.  Fixed fee advice

"Another opportunity for working together is to get the help with mediation working for all clients not just the legally-aided. I know family lawyers are grappling with the fixed fee for family matters. Maybe there is a parallel here with fixed fee conveyancing which as we know has been around for many years. For us to be able to tell clients that they can have advice on the options they have developed in mediation and drafting services for a fixed would be enormously beneficial."

3.  The recommendations of the Financial Remedies Report

"The Financial Remedies Report recommends a unified procedure for financial order applications after a divorce and Children Act Schedule 1 applications. This I think will be hugely beneficial for families and keeps the money closely aligned to the children. There is also the fact that the MIAM is compulsory for both child issues and financial remedies and at every point there is emphasis on out of court settlement which means there are opportunities  for us to support families and the courts as people hover between the steps of court and reaching settlement."

She concludes:

"I don't just want to be here talking about 'working together', but for today to be the first stage of some practical collaboration: arrangements from which both lawyers and mediators can both benefit with end users – children and families - central to those discussions."

President questions divorce remaining subject to judicial supervision
The Law Society Gazette reports that Sir James Munby has publicly questioned whether divorce should remain subject to judicial supervision.

As well as comments on the new child arrangement programme, Munby P suggested even more fundamental changes to divorce may be required.

He asked whether the time has come to legislate to remove all concepts of fault as a basis for divorce and to leave irretrievable breakdown as the sole ground. This may also lead to separating the process of divorce from the process of adjudicating claims for financial relief following divorce.

'May the time not come when we should at least consider whether the process of divorce still needs to be subject to judicial supervision?' he added.
Sir James said the aim of the family court must be to 'simplify and streamline' the process to make it more user-friendly for litigants in person and cheaper for all.

For the full article click here

Rapisarda v Colladon (irregular divorces) [2014] EWFC 35 (Sir James Munby, President)
A member of court staff at Burnley County Court spotted that two divorces, both involving Italian couples, also had the same Maidenhead address.  This led to the unravelling of an industrial scale fraud.  Between August 2010 and February 2012, 180 petitions had been issued by 137 county courts all using the same address.  The divorces were being arranged by a Dr Russo (at €3,750 a head).  During the course of proceedings brought by the Queen's Proctor to set aside the decrees fraudulently obtained, attempts had been made to notify all parties involved in the petitions.  Only one couple, Rapisarda v Colladon, chose to attempt to challenge the Queen's Proctor.  They were not successful. 

The judgment sets out the law of divorce in England and Wales.  The President confirms that "simply" perjury is insufficient to make a decree void on the grounds of fraud but that if the court is "materially deceived" by perjury or fraud as to jurisdiction, the divorce will be void.  A decree can also be voided where there has been serious procedural irregularities involving fraud.  All petitions upon which no decree had been pronounced were dismissed and all those decree nisi and absolute obtained were set aside and the underlying petitions were dismissed. 

Munby P concludes his judgment by looking at how such frauds could be avoided in the future.  The FPRC are due to consider these suggestions in the future.  In particular, Munby P addresses the fact that the fraud was facilitated by the petitions being spread across 137 different county courts – so very few county courts dealt with more than one fraudulent petition.  Referring to his "View from the President's Chambers: The process of reform: an update" [2014], he confirms that HMCTS will now centralise the handling of divorce petitions.  The work will be limited to a set number of locations where petitions will be issued and all "special procedure" divorces will be processed.  He says:

"I anticipate that by this time next year there will be fewer than twenty, possibly as few as a dozen, places at which a divorce petition can be issued."

Other suggestions that are being investigated include whether the notice of application for decree nisi should require the completion of a statement of truth in a specified form next to a prominently displayed warning of the penalties for untruth. The other is that part of the process in the court office for issuing a divorce petition should include a search of the court's FamilyMan system to identify whether the address(es) given in the petition have been used in other cases.

Prest v Prest [2014] EWHC 3430 (Fam) (Mr Justice Moylan)
Mr Prest ("H") received a suspended four week prison sentence for failing to pay maintenance arrears of £360,200.  Rejecting his argument that the demise of his trading company had caused the breach of the order, Moylan J found that H's expenditure between February 2012 and May 2013 and his application to the Court of Appeal for an extension of time to pay £600,000 to pursue his appeal against the financial remedy order illustrated that he did indeed have the means to pay and had refused or neglected to do so. 

Moylan J also draw attention to H's failure to properly disclose his financial position, the alleged collapse of the trading company was inconsistent with other evidence advanced in earlier proceedings and H had been unable to explain / challenge W's evidence regarding significant holiday costs.  H had until 28 October to pay.

W clearly discharged the burden of proof to the criminal standard necessary for her judgment summons application.  Helpfully, Moylan J confirms that the wording of s.5(2) Debtors Acts 1869 and r.33.14 FPR 2010:

• H has or has had, since the date of the order, the means to pay the sum in default

• H has refused or neglected, or refuses or neglects, to pay

is deliberately framed in both the present and past tense so as to ensure that the criteria are satisfied if both ability to pay and refusal or neglect to pay are proven at any point from the date of the order to the hearing date. The alternative verbs "refuse" and "neglect" also mean a culpable indifference to pay is enough (Bhura v Bhura [2013]).

L v M [2014] EWHC 2220 (Fam) (Mr B.G.D. Blair QC sitting as a Deputy High Court Judge)
The husband ("H") and wife ("W") were both British.  They had started cohabiting together in early 2006, had married in January 2008 and had had one child, a girl, later that year.  H had substantial connections with Africa both on a business and a personal level.  The family's principal home throughout the marriage was in Harare and they also had a holiday home in Kenya. 

By 2010, the marriage was in difficulties.  In early May 2010, W, suspicious that H was planning to issue divorce proceedings in Zimbabwe, instructed English lawyers to issue proceedings here.  During this time, H sent W an email confirming that he had had an "introductory meeting" with a divorce lawyer to explore what would be involved if they separated and that he wanted to "start a process of settlement going". 

The wife contended that a few days later, she sought to instruct Mishcon de Reya solicitors but that voicemail messages she left at their offices went unanswered.  The wife's case was that on the following day, H told W that he had instructed Mishcons.  Despite this, by the end of May 2010, with the assistance of a friend who was a solicitor, the couple agreed the terms of a separation agreement (which was signed on 6 August 2010) and an accompanying draft consent order.  The principal terms of the agreement were:

• H to pay W a lump sum of £2,000,000 in four instalments (ending in December 2011); and

• H to pay W global maintenance on a decreasing scale until the child completed university or attained the age of 25, whichever occurred earlier (£13,000 a month was to be paid until the £2m lump sum had been paid then £9,000 a month for the next four years and then £6,000 a month)

H paid the first instalment of £100,000 in part-payment of the lump sum, as well as the interim maintenance until May 2012.  He then reduced the interim maintenance until December 2012 when he stopped paying altogether.  He then resumed paying interim maintenance but again at a lower rate than that agreed.  Finally, he sought to resile from the agreement completely. 

W applied for notice to show cause.  H contended that: 

• there had been insufficient financial disclosure at the time of the making of the agreement;

• he had not had legal advice on the terms of the agreement or on the implications of the agreement or consent order;

• parts of the consent order were simply things the court could not order (i.e. they were beyond the court's jurisdiction); and

• the reality of his financial position was that he was not in a position to make the payments agreed.

He relied upon an alleged change in his financial circumstances and argued that any order should take into account not just this change but also the length of the marriage, his limited assets and the monies which had already been transferred to W. 

Meanwhile, W argued that the agreement had been freely entered into, with both parties having full knowledge of the other's financial position and that each had eschewed the need for detailed, documentary formal disclosure.  Both H and W, the Wife said, had been made aware of the full consequences and implications of the agreement with the agreement recording that they had each received "legal advice or the opportunity to take legal advice".  She gave evidence that H had received legal advice in Zimbabwe and in England (although clearly she did not know its scope or substance).  She said that H had told her that he had gone to Mishcon de Reya for advice. 

In the run up to the final hearing, the parties exchanged Forms E and subsequently exchanged substantial questionnaires.  H failed to reply to W's questionnaire.  Following a hearing at which interim maintenance was in issue, H was ordered to reply to the questionnaire and in particular to provide information and documentation concerning a Mauritian Foundation. W was given liberty to apply for directions if H failed to provide the documentation requested by a certain date.

At the same hearing, it was recorded that H had been requested to provide an undertaking to W's solicitors to obtain his entire solicitors' file from Mishcon de Reya. 

H did do so and W's questionnaire remained unanswered. W then made an application before Mr Justice Moor for the Mauritian Foundation to be ordered to disclose the information she had requested. Mr Justice Moor granted her application, and recited that it was likely that the judge hearing the case would draw adverse inferences against H as to his financial circumstances if this information was not provided.

Although H had been represented during the proceedings, by June 2014 he was unrepresented and was not taking any substantive part in the litigation.  Despite H's absence from the final hearing, the court proceeded with the five-day trial. 

Held:  Mr Blair QC stated that H's financial position, and particularly his current income, was a mystery.

Looking at each of H's contentions in turn, Mr Blair QC said that he found it hard to fathom how H could complain of the lack of financial disclosure.  Not only had H failed to particularise his assertions in any meaningful way, he had not complained that W's disclosure was lacking and the agreement itself had recorded the parties' lack of disclosure and that both had been content to accept that. 

On the balance of probabilities, the judge found that H had had some legal advice on the financial consequences of divorce and had certainly had ample opportunity to take advice.  Even if that conclusion was wrong, he said, the lack of advice had been H's deliberate decision "uncontaminated by any lack of knowledge, inequality of bargaining power or other vitiating factor".  The agreement, he said, had been freely entered into by H who had had a full appreciation of its implications.  Mr Blair QC made an express finding that H had been wholly content with the agreement's provisions in 2010, and that they sat comfortably with the worth and substance of his financial resources.

In so far as the length of the marriage was concerned, the judge considered that the overall quantum of the settlement was within the bracket of what would be considered fair, especially when taking into account the parties' consensus and the finding that H was content with the agreement. 

H's assertion that there had been a change in his financial circumstances took up most of the time in court.  W's case that H's disclosure was wholly unreliable was, the judge said, inescapable. She was, with justification, able to go as far as asserting that the statement provided by H was not only highly unconvincing but false.  Mr Blair QC concluded that had this been a conventional FR case, his finding would have been that H was worth many millions of pounds and his assets included the main assets considered in the judgment.  H had indeed fallen short of persuading the court to find that a change of circumstances had taken place.

In conclusion, Mr Blair QC held H to the fundamental terms of the 2010 agreement.  A few modifications were made to the agreement in respect of issues which the court lacked jurisdiction to order.  Periodical payments were ordered premised on the agreement, and H was ordered to make good his default to set up a trust for the child, as agreed.

Abuchian v Maksoud [2014] EWHC 3104 (Fam) (Mr Justice Holman)
This case concerned an unsuccessful attempt by a husband ("H") to strike out his wife's ("W") applications under the Married Women's Property Act 1882 and Family Law Act 1996.  H attempted to rely on W's breach of an earlier order - that her reply to H's points of defence had been filed late – two days late.  He also argued that W had failed to file answers to a questionnaire. Holman J found that it was disproportionate and unjust to strike out the applications on this basis – in particular, W had not failed to supply answers to questionnaires as the court had not fixed any timetable within which the questionnaire should be answered. H's application was dismissed and the timetable for all other matters was accelerated.

Quan v Bray & Others [2014] EWHC 3340 (Fam) (Mr Justice Coleridge)
The husband ("H") and wife ("W") had cohabited together from 1997 and had married in 2001.  W was a conservationist and in 2000, had established a UK charity, Save China's Tigers ("SCT UK"). Its aim was to save Chinese tigers from extinction and breed them for reintroduction into wild reserves.  H was an expert in structured finance who retired in 2001 and also invested time and resources in the tiger project.

H set up a discretionary Mauritius trust - the Chinese Tigers South Africa Trust ("CTSAT") - in 2002.  CTSAT's funds were used to further the Chinese tiger project. H and W were not beneficiaries of CTSAT and were later specifically excluded as beneficiaries.

When the parties' relationship broke down, W issued a divorce petition. By that time (August 2012), CTSAT had assets estimated at £25million. The parties had assets worth about £1.6million having lived off H's savings during the marriage. At the FDA, W suggested that H might intend to extract funds from CTSAT for himself.  Subsequently, W filed an amendment to her Form A, seeking a variation of CTSAT as a post nuptial settlement.

W argued that CTSAT had been established not only to help the Chinese tiger, but also to provide financial support for herself and H personally over the longer term.  The trust instrument and other documents did not reflect the true position, she said. 

Meanwhile, H's case was that CTSAT had been created solely for the purpose of furthering the Chinese tiger project and that its funds had been spent on the project and would continue to be so.

There were two OS v DS hearings where Coleridge J had to determine whether CTSAT was a post-nuptial settlement capable of variation under s.24 MCA 1973 and, if not, the extent to which it was (if at all), a resource under s.25 MCA 1973 available to H to meet W's claim.  He identified the questions of law as being:

• Could CTSAT be categorised as a post-nuptial settlement and the parties as beneficiaries because it was a fully discretionary trust (and capable of being amended or adjusted (by adding trustees or terms) to make them beneficiaries)?

• If not, should CTSAT be regarded as having become a post-nuptial settlement, if there was, by the time of the application to vary, an existing intention to benefit the parties, evidenced by past receipts from the trust?

• If the parties had not to date received any benefits, was the mere intention to benefit the parties in an unspecified way and at some unspecified time in the future sufficient of itself to constitute a post nuptial settlement?

He identified the questions of fact as being:

• Was H capable of procuring changes to CTSAT to enable the parties to benefit from it?

• Was there evidence to demonstrate past, present or future benefit to the parties from CTSAT?

• What was the intention underlying the creation of CTSAT?

Held:  CTSAT was not a post-nuptial settlement and was not available to H as a resource from which he could meet W's claim. 

Coleridge J looked first at the essential feature of a post-nuptial settlement which, he said, seemed to be an existing disposition in favour of one or both parties to the marriage (in their capacity as husband or wife) and for their present or future benefit. An existing intention to benefit one of the spousal beneficiaries was a prerequisite.  

Further, he found that a settlement which was non-nuptial at its creation could later become "nuptialised", if there was a flow of benefit to the parties during the marriage from the trust. Alternatively, a later disposition from the trust could itself constitute a post-nuptial settlement without the main trust necessarily becoming nuptial.

In looking specifically at CTSAT, he said that the mere fact that a trust is a fully discretionary trust, capable of being varied to add other beneficiaries including the parties, did not of itself mean that the trust was a post nuptial settlement.  Had there been a regular flow of receipts paid from CTSAT to the parties (in their capacity as spousal beneficiaries) for their benefit, this would have been evidence of a "pre-existing intention to benefit them", whatever the trust instrument said.  It would evidence an existing disposition and thereby render the trust a post-nuptial settlement.

However, if all that was established was a vague, unspecified intention at some time in the future, depending on the circumstances then prevailing, to benefit the parties, possibly by amending the trust deed or in other ways, that was not enough to turn a non-nuptial settlement into a post-nuptial settlement. That could not amount to an existing disposition. 

Coleridge J found that although H could theoretically seek to change the beneficiaries of CTSAT, there was no guarantee that the trustees would do his bidding.  There was also no evidence of any benefit following from CTSAT to the parties.  Nothing had been paid to H or W and there was no existing intention to do so. The highest W's case could ever be put, even on her own evidence, was "a vague, unspecified intention at some time in the future, depending on the circumstances then prevailing, to benefit the parties, possibly by way of amending the trust deed or in other ways" and that was not enough to turn a non-nuptial settlement into a post-nuptial settlement.

Finally, H had provided strong evidence (that was well supported and documented) that CTSAT had been set up with the sole purpose of furthering the Chinese tiger project.  There had been no conversations at the outset or subsequently establishing an intention to benefit the parties, and there was no and never had been, any ulterior or secondary purpose to CTSAT. 

So, CTSAT was found not to be a post-nuptial settlement and, further, its £25million worth of assets could not properly be regarded as a resource of H's.  It would be wrong in principle for the court to make a lump sum order against H in the hope and expectation that funds would be provided by CTSAT to fulfil it.

After Coleridge J's judgment was delivered in draft to the parties in July 2014, W issued a Barrell application and further lengthy submissions, inviting the court to re-write the judgment. Coleridge J did not amend his findings or conclusions and held that W's use of the Barrell jurisdiction was wrong. The Barrell jurisdiction allows a judge to change his own decision (Re Barrell Enterprises [1973] 1 WLR 19).  It was designed to allow the court to look again at particular findings or conclusions, where a particular fact or evidence had obviously been omitted, overlooked or had changed since the hearing.  It did not afford W the right to invite the court to start again from scratch and "have another go" at finding for her, based on an entire re-arguing of the case.
The case serves as a useful reminder that although post-nuptial settlements usually involve a conventional written trust document, all kinds of transactions and arrangements have been held to be nuptial settlements, capable of variation under s.24 MCA 1973  There is useful guidance about how to identify a post-nuptial settlement, clarifying that there must an existing disposition in favour of one or both parties to the marriage (in their capacity as husband or wife) and for their present or future benefit. An existing intention to benefit one of the spousal beneficiaries is a prerequisite. 

G v G [2014] EWCA Civ 1378 (Lord Justice Ryder)
In brief:  Permission to appeal was granted against an order whereby a lump sum was to be paid to the wife ("W") from the net sale proceedings of the sale of the former family home and 50% of the balance of those proceeds was to be divided equally between W and the husband ("H") on a clean break basis.  The resulting departure from equality, after what was a long marriage of over 30 years, was described as "manifest".  Ryder LJ found that valuation evidence of a second property had not been properly adduced; the evidence went to the heart of the order made and there was a real prospect of success on appeal. 

Bakir v Downe
[2014] EWHC 3318 (Fam) (Mr Justice Mostyn)
In brief:  A practical decision clarifying that where the terms of an undertaking are clear and that  undertaking is given in court and is recorded in the transcript of the proceedings or can be recorded in an order for the court's approval, there is no need for a general form of undertaking to be signed separately (as in these circumstances the general form of undertaking is not a legal requirement to make an undertaking effective). 

During the course of freezing injunction proceedings, the husband ("H") (who was acting in person) gave an undertaking to the court.  Following the hearing, the wife's ("W") counsel drafted an order including the undertaking and also prepared a general form of undertaking for H to sign.  H refused to sign the undertaking but the court approved the order in its entirety.  H sought to challenge the order on the grounds that he had not executed the general form of undertaking.  Mostyn J swiftly put a stop to H's attempt to renegade on the order. 

Further, Mostyn J emphasised that the court will not / should not excuse a LIP from compliance with procedural requirements.  Here, H's application had not been made in accordance with Part 18 FPR 2010; as a result, he was ordered to pay the costs of the application.