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Finance & Divorce Update May 2016

Edward Heaton, Principal Associate, and Jane Booth, Associate, both of Mills & Reeve LLP analyse the news and case law relating to financial remedies and divorce during April 2016

Edward Heaton, Principal Associate, and Jane Booth, Associate, both of Mills & Reeve LLP 

This month's update is divided into two parts:

A. News in brief

Child Maintenance Service's caseload rose by 21% in 3 months to February 2016
88% of money due has been paid under the 2012 scheme. More information can be found here.

The number of marriages in 2013 fell by 8.6%
This was the first annual decline since 2009.  More information on the statistics can be found here.

Police pensions: transfer values and pension sharing on divorce – addenda published
The Home Office has published addenda in relation to non-club transfer values and pension sharing on divorce in the 1987, 2006 and 2015 police pension schemes.  Club transfer guidance and factors are also included in the 1987 police pension scheme. Each document should be read in conjunction with its addendum.  The documents can be found here.

New Resolution Chair aims for no fault divorce
New Resolution national chair, Nigel Shepherd, used his first speech in the role to issue a call for family lawyers to continue to press for no fault divorce.  Mr Shepherd said "it's wrong – and actually bordering on cruel – to say to couples: if you want to move on with your lives…. one of you has to blame the other."  More information can be found here.

Court takes stand against "divorce tourism" in case of millionaire barrister and artist ex-wife
An Appeal Court judge has taken a stand on so-called "divorce tourism" in a dispute between a millionaire QC and his former wife who agreed a settlement in Australia.  An article on the case can be found here.

Family Justice Council: Help with sorting out finances on divorce
The Family Justice Council has launched a new financial guide to help people going through a divorce without a lawyer.  The guide can be found here.

B. Case law update
Mary Patricia Mutch v James Mutch [2016] EWCA 370
This case was an appeal against an order made by His Honour Judge Booth in November 2014, setting aside an order that he had made in November 2012.

In July 2012, the Judge had made an order in financial remedy proceedings which had provided, among other things, for the former matrimonial home to be sold and for the husband's pension to be shared with the wife.  It had also provided for spousal periodical payments to be made by the husband, paragraph 3.2 of the order providing for the payments to end on the first to occur of:

"a. the death or remarriage of the wife
b. completion of the sale of the former matrimonial home
c. further order of the court

Paragraph 3.3 then provided:

"3.3 In the event that the sale of the former matrimonial home as provided for above has not been completed by the 4th November 2012 AND in default of agreement between the parties as to the continuation of any order for periodical payments as provided for above, there be liberty to either party to apply to His Honour Judge A Booth (to whom the matter is reserved) for further directions in respect of the order for periodical payments…". 

Paragraph 7 contained the usual "liberty to apply" clause.

The husband had subsequently failed to comply with the terms of the order, and the wife had filed an application, in October 2012, "for further Directions under the Liberty to Apply Provision of the Order…".  In the accompanying witness statement, the wife's solicitor had invited the court to "make orders to enforce the payment of the spousal maintenance including an order requiring [the husband] to pay arrears…".  In addition, since it had become clear that the wife would ultimately receive less than had been anticipated from the sale of the former matrimonial home in due course, the solicitor had invited the court "not to terminate [the wife's] spousal maintenance immediately upon completion of the sale but to vary the sum downwards…".  The solicitor had indicated, furthermore, that the wife had been severely disadvantaged by the fact that the pension sharing order had not yet been implemented and had invited the court to make an appropriate order to ensure implementation.

In November 2012, a consent order was made which contained the following recital:

"UPON HEARING Counsel for the Wife and the Husband in person at the hearing of the Wife's application for directions and enforcement of maintenance arrears and for a variation of the order for spousal maintenance and for directions with regard to the implementation of the pension sharing order…".

The Order itself provided, in short, for the husband to continue to make periodical payments (notwithstanding the fact that the former matrimonial home had, by this stage, been sold) until such time as the husband's pension provider was in a position to implement the pensions sharing order.  Again, there was a liberty to apply provision.

The husband still failed to comply fully with the order and, in February 2014, the wife made a further application, this time for a judgment summons.  At the hearing of that application, the Judge was persuaded that he had not, in fact, had the power to make the November 2012 consent order as the liberty to apply provision relating to the periodical payments had conferred a limited power only on the court to deal with the items of expenditure that the husband was to meet and the amount of the payments, and not a wider power to extend the term for which the maintenance was payable.  Accordingly, the November 2012 consent order was set aside.

In her leading judgment, Lady Justice Black referred to the fact that the original order had not specifically excluded the wife's entitlement to apply for an extension to the term and that, accordingly, the wife's entitlement had not been excluded.  The question, therefore, was the extent to which the wife had made an application and done so before the expiry of the term.  Whilst the formalities of such an application had not been strictly adhered to, it was clear from the witness statement, which needed to be read in conjunction with the application notice itself, that an extension was being sought, and it was further clear, from the recital to the subsequent consent order, that this was understood to be the position.  A valid application had, therefore, been made.  The final clean break contained in the consent order, furthermore, had been "contingent upon the implementation of all the terms of the order, not just the sale of the home".  Accordingly, the appeal was allowed. 

Z  v Z & Others [2016] EWHC 911 (Fam)
This was a hearing in relation to an application by the wife for financial relief after an overseas divorce under Part III of the Matrimonial Family Proceedings Act 1984.   The hearing in question, before Mrs Justice Roberts, was initially intended to be a final hearing but it was agreed, at the pre-trial review, that the 7 days set aside for the hearing were insufficient.  Accordingly, it was agreed that the wife's application would be heard in two stages, the first to determine whether an order should be made in the wife's favour and, if so, the second being to determine what that order should be.

The factual background of the case was extremely complex, involving a number of offshore trusts.  In short, however, the husband and the wife were both Russian nationals.   They had married in Moscow in 1997, before separating in 2008.  They had three children, aged 18, 17 and 15, all of whom had experienced health issues of some sort.

The parties had divorced in Russia, the Russian court making an order in August 2009 embodying a financial agreement which provided for the wife to receive US$10m which, at the time, was said to be more than 50% of the available joint assets.  The Russian order was expressed to be in full and final satisfaction of the parties' respective claims against each other.  

At the time of the divorce, the wife and the children were living in a property in Kensington.  The property had been purchased in 2007 by a company which was, itself, owned by a Bermudan trust set up by the husband's very wealthy father.  The wife and the children were continuing to reside at the property at the time of the hearing before Mrs Justice Roberts.

The wife's application under Part III was issued in July 2014.  The wife sought the Kensington property, a second property in London and a payment of just over £8m.  In their respective Forms E, the wife and husband disclosed resources worth £4.7m and £40m respectively.  This was, in the husband's case, considerably more than he had disclosed at the time of the Russian divorce as he had since received significant payments out of trust.  Details of the various trusts that existed fall outside the scope of this summary, the judgment extending to some 58 pages and 158 paragraphs.

By the time of the hearing, the wife was 45 years old and the husband was 47.  The husband, who divided his time between homes in Cyprus and Bulgaria, had remarried and had two young children, each of whom also had health problems to a varying degree. 

The wife's earning capacity was, in no small part due to the fact that she had also suffered health issues, assessed to be minimal.  Her income needs (including those relating to the children) were stated to be in the region of £500,000 per annum.

The two stage approach adopted in the case reflected sections 16, 17 and 18 of the 1984 Act.  Section 16 provides that:

"… before making an order for financial relief the court shall consider whether in all the circumstances of the case it would be appropriate for such an order to be made by a court in England and Wales, and if the court is not satisfied that it would be appropriate, the court shall dismiss the application".

Section 16(2) lists a number of matters to which the court shall in particular have regard, section 17 enables the Court to make a range of orders for financial provision and property adjustment and section 18 lists matters to which the Court is to have regard when exercising its powers under section 17. 

In her judgment, Roberts J quotes extensively from the judgment of Lord Collings in the "seminal authority" Supreme Court case of Agbaje v Agbaje [2010] UKSC 13.  In particular, the following points are highlighted.

The "legislative purpose" of Part III is to alleviate "the adverse consequences of no, or no adequate financial provision being made by a foreign court in a situation where there [are] substantial connections with England".  Two duties of the Court are referred to, to consider (i) whether England and Wales is the appropriate jurisdiction to make an order and (ii) whether an order should be made having regard to the matters detailed in section 18. 

The purpose of Part III was not to allow a spouse to take advantage of what "may well be the more generous approach in England to financial provision", "mere disparity" between an award and what would have been awarded in England not being sufficient to trigger an application.

The amount of financial provision will depend upon all of the circumstances of the case but the following "general principles" should be applied:

(i) primary consideration should be given to the welfare of any children;

(ii) it will never be appropriate to make an award giving the claimant more than he or she would have received had the main proceedings taken place in England; and

(iii) where possible, the order should make provision for the reasonable needs of each party.

In very broad terms, the husband's case was that:

• he and the wife had reached a final agreement, which had been embodied in a Russian court order giving the wife more than 50% of the available capital (as much as the wife would have achieved in England and Wales);

• both he and the wife had taken advice in London and in Moscow;

• the Russian agreement had been in full and final satisfaction of his and the wife's respective claim against each other;

• there was no reason why the wife should be allowed to resile from the terms of the agreement;

• the agreement constituted a post-nuptial agreement which, following the landmark decision in Granatino v Radmacher (formerly Granatino) [2010] UKSC 42, the Court should recognise;

• the wife's application was a "classic 'second bite of the cherry'" scenario, the wife having failed to ask the Russian court to apply English law in respect of the trusts; and

• the delay between the Russian agreement and the wife's Part III application was the "final nail in the coffin".

It was the wife's case that the Russian order had been designed to deal with the division of the Russian matrimonial property, and she sought to rely on the fact that her English solicitors had, on more than one occasion in the weeks and months leading up to the Russian order, flagged up her claims in respect of the Kensington property and an application under Part III.  It was her position that she had had no option but to reach a settlement in Russia in order to secure some financial security for herself and the children, she had not been in any state to continue litigation and she had been concerned about veiled threats by the Russian judge to make a report to the Russian tax authorities and about what impact this might have upon her and the family.

The wife pointed to the disparity between the parties' respective positions in that she was having to dip into her capital to cover her outgoings, the balance of which would ultimately be required to meet not only her future housing but also her income needs.  In contrast, the husband now had considerable access to substantial wealth and his current lifestyle of "yachts and helicopters" would continue unaffected by the passage of time.  Despite the structure of the ownership of the Kensington property, it was clear that the husband would do with it as he wished, and the English court would not have made the order that the Russian court had made given the uncertainty that would result in respect of the continued occupation by the wife and the children of the Kensington property.  The need for secure housing was a referred to as "a fundamental plank".

Roberts J held that, by "the narrowest of margins", it was appropriate for the English court to make an order in the wife's favour.  This was so, despite the delay between 2009 and the making of the Part III application.  Whilst allowing the wife's application to proceed to the second stage, however, the Judge made it very clear that the wife needed to reconsider what she was seeking to achieve, the target of the Kensington property, the second London property and £8m being described as being "wildly ambitious".  Roberts J stressed that any order would be based on needs, furthermore, the wife's needs being restricted in light of the delay, and the court would not allow the wife a "second bite".

In her judgment, Roberts J made the following points:

• Even if the terms of the Russian agreement had, at the time, been fair, it did not necessarily follow that it would not be appropriate for the English court to make an order under Part III.  The Judge had to "stand back and survey all the circumstances of [the] case, including the particular factors listed in section 16";

• Whilst (i) the Russian agreement appeared to have captured not only real property but also property held in trust and (ii) the wife could, in theory, have asked the Russian court to apply English law, "the likelihood of the Russian court acceding to a request from the applicant to apply English and/or Bermudan law to the division of… property… was remote as a matter of practical reality";

• She accepted that (i) the wife had felt a degree of pressure in 2009, "since… the respondent was plainly in a superior position so far as her occupation of the Kensington House was concerned", and (ii) the threat of a tax investigation had been a cause of concern for the wife;

• The Russian agreement had made no express provision in respect of the wife's housing, and there did not appear to have been any enquiry by the Russian court as to the extent to which $10m would be sufficient to meet the wife's needs;

• It was relevant to the overall fairness of the Russian agreement that the wife had (or at least must be presumed) to have relied upon assurances from the husband in respect of her continued occupation of the Kensington property whilst the children were minors;

• Whilst $10m was likely to survive the "'fairness' health check", she was not required to leave things as they were in 2009.  The wife no longer had $10m at her disposal and there had been a "very significant change" to the husband's circumstances; and

• Whilst the issue of delay had "troubled" her, the wife had taken steps to explain it by referring to (i) her own exhaustion and continuing health issues following the Russian agreement, (ii) the health issues of the children with which she had had to deal, (iii) the fact that she had instructed solicitors in 2012 and had made a formal complaint against the Legal Ombudsman on the basis that the solicitors in question had failed to progress her case and (iv) the reinstruction of Withers, her previous solicitors, in early 2013 to pursue the claim.

K v K (Financial Remedy Final Order prior to Decree Nisi) [2016] EWFC 23
This matter, before Mr Justice Cobb, related to a preliminary issue as to the validity of a final order made by District Judge Heppell which had been made before the pronouncement of Decree Nisi.

At the conclusion of a hearing, DJ Heppell had made a number of substantive orders.  The principal order had been for the sale "forthwith" of the former matrimonial home, with 60% of the net proceeds of sale being paid to the wife. DJ Heppell had ordered a clean break in respect of all other forms of financial relief, including pensions.  Cobb J noted that, following the words "It is ordered that", there were the words "with effect from Decree Absolute". 

Counsel for the wife submitted that it was only when the solicitors for the wife were considering enforcement measures that they discovered that, at the time of DJ Heppell's order, decree nisi had neither been applied for nor granted.
Cobb J considered that it was crucial that, prior to consideration of either of the parties' applications, the status of DJ Heppell's order, made before the grant of decree nisi, needed to be established.

The wife contended that the otherwise strict wording of section 23 must be read in the context of rule 29.15 of the FPR 2010, which reads as follows: "A judgment or order takes effect from the day when it is given or made, or such later date as the court may specify".

Although the wife accepted that the order had been made prior to the grant of decree nisi, she advanced a case, through Counsel, that proportionality and adherence to the overriding objective (rule 1 FPR 2010), should encourage the Court now to find a way of sustaining DJ Heppell's J's order, so that the order could be declared as "taking effect" from a date after 14 April 2016, even if that meant restoring the case back to DJ Heppell at this stage for his further ruling in that regard.  Counsel for the wife conceded that the order for the sale "forthwith" of the property meant what it said, and that the suffix "with effect from Decree Absolute" was included in the order merely to regularise the position as between the parties in relation to the proceeds of sale of the home and pension entitlement.

The husband (acting in person) said that he had been unaware of the point until the morning of the hearing and, as such, indicated that he would leave it to Cobb J to resolve.

Cobb J said that it appeared that, at the time of the final hearing of the financial remedy application on 3 December 2015, DJ Heppell had been under the misapprehension that decree nisi had been granted.  In addition, Cobb J found that:

• Counsel and solicitors for the wife had been under the same misapprehension;

• The husband had not known the significance of obtaining the decree nisi prior to the final hearing;

• The judgment of DJ Heppell had been expressed as a final determination taking effect from the moment of judgment;

• The order had been drawn up shortly after the hearing and sealed;

• There had been provisions in the order (albeit expressed as recitals) to be acted upon within a matter of days, failing which sanctions would follow;

• The provisions to be acted upon within days had been acted upon by both parties;

• Cobb J found that the wife had "plainly contemplated that the order was to have immediate effect given the preparatory steps which she took, immediately following the judgment, as described in her counsel's position statement, and indeed in her own statement in support of the enforcement application".

Cobb J was driven to the conclusion that DJ Heppell had purported to make an order that would take immediate effect, prior to decree nisi, and that his order was therefore a nullity.  Cobb J did not accede to the submission of the wife's Counsel that DJ Heppell could now direct a new date upon which his order would take effect.  Cobb J found that the order could not be saved by rule 29.15.  Cobb J directed that the case be returned for a rehearing before a District Judge.

TM v AH [2016] EWHC 572 (Fam)
This case related to an application by a wife for an order that the trustees of two trusts that she was seeking to vary be joined as parties to the proceedings. 

In his short judgment, Mr Justice Moor concluded clearly that there was "an existing matter in dispute…which [required] for its resolution the joinder of a new party, namely [the] trustees".  He referred to the fact that, in his experience, trustees were joined to proceedings where there was an application to vary a trust.  In this regard, Mr Justice Moor was at odds with Mr Justice Mostyn in ER v GR [2013] EWHC 1196, in which Mr Justice Mostyn had taken the view that, once trustees have been served, the court can determine matters without the need for the trustees to be joined as parties.

Work v Gray [2016] EWCA Civ 286
This was a renewed application for permission to appeal made by the husband against an order made by Mr Justice Holman in March 2015.  The husband's renewed application was before Lady Justice King, who had heard his original application in July 2015.  On that occasion, she had refused permission. 

The order of Mr Justice Holman provided for the husband to pay to the wife a series of lump sum payments, the first one of approximately £60 million on or before 3 April 2015, the second of around $50 million on or before 2 August 2015 and any balance (needed to make up 50% of the net value of the parties' assets as at the end of 2014) to be determined by the court at a further hearing.  Until such time as the lump sums had been paid, the husband was to pay maintenance pending suit. 

By way of background, the husband was 48 and the wife 46.  They had met in 1992, when they had been in their early 20s.  They had subsequently married in 1995, when they had "good but modest jobs and no accrued capital".  In July 1997, the husband had begun working for a private equity firm called Loan Star, in Texas, before taking up a role for the firm in Tokyo and subsequently moving to Hong Kong and then on, in 2008, to London.  By the time the parties moved to London, it was said that the husband had accumulated "actual personal wealth" of $300 million with "further paper wealth" in the firm which he was subsequently unable to realise of $150 million.

In March 2015, Mr Justice Holman had concluded that there had been no special contribution by the husband, and the husband was now seeking to appeal that decision, the main thrust of his argument being that the sheer level of wealth generated by him meant that he had made a special contribution.

Lady Justice King granted permission to appeal on the basis that it was "arguable that the judge erred in his approach to the test, in particular in not sufficiently considering the sheer quantum of the product and whether that should have made it easier on the facts…to have concluded that this husband's contribution had been exceptional prior to moving on to consider whether or not that was (or was not) an unmatched contribution and whether it would (or would not) be inequitable to disregard in all the circumstances". 

Welch v Welch [2016] EWFC B18
This was a hearing before HHJ Hess relating to a number of outstanding applications in the long running dispute between Mr and Mrs Welch.
HHJ Hess summarised the litigation as follows:

• In 2002, the wife had suffered a significant defeat before Baron J in the ancillary relief proceedings arising from her first divorce;

• In 2007, the wife had attempted to set aside the Baron J judgment and, despite strong adverse advice from her legal team, proceeded to a final hearing in 2008, and was heavily defeated with an indemnity costs order awarded against her by His Honour Judge Seymour QC;

• When pursued by her own solicitors for their costs in respect of that exercise, the wife had counter-claimed in professional negligence and, in 2010, this litigation likewise ended in a defeat with a costs award against her by Sharp J;

• HHJ Hess had delivered judgment on 9 September 2014 and had made a final order that day in relation to the wife's second divorce.  He made some detailed and substantial adverse conduct findings against the wife and, with one or two small exceptions, rejected allegations of material non-disclosure;

• The wife had subsequently attempted to challenge and overturn the order of 9 September 2014 as well as to obstruct its implementation;

• In two very full judgments (dated 16 and 23 February 2015), Roberts J had rejected an application by the wife for permission to appeal the order of 9 September 2014. Her judgment of 16th February 2015 included the following passage at paragraph 82:

"I have reached the clear conclusion that the wife's application for permission to appeal, on whatever basis it is advanced, is totally without merit… I would only add this word of warning to the wife… she should be aware that any further applications or appearances may well result in further orders for costs";

• On 31 July 2015, Holman J had subsequently dismissed an application by the wife to set aside the order of 9 September 2014, describing the application as being "totally without merit". He had also made a Civil Restraint Order on that day, defined to last until 31 July 2017, preventing the wife from making "any further application in any civil court concerning any matter involving or relating to or touching upon… proceedings under case number GU13D00045 without first obtaining permission from HHJ Hess in Portsmouth Family Court";

• The matter had subsequently been before a single judge in the Court of Appeal on more than one occasion, but in an order dated 18 February 2016, McCombe LJ had described the appeal to the Court of Appeal as "being totally without merit" and wrote "this order brings to an end the wife's wholly meritless attempts to frustrate the order"; and

• The wife had also engaged in other pieces of satellite litigation – for example, she had made recusal applications in relation to both HHJ Hess and Roberts J, had opposed the publication of judgment transcripts and had also opposed specific measures for the implementation of the order of 9 September 2014 – and, in each case, the wife had had little or no success.

HHJ Hess formed the overwhelming view that the wife "wish[ed] to see [the husband] harmed".  The wife regarded her previous defeats outlined above as "a gross misjustice waiting to be corrected".  The Judge indicated that "the evidence strongly suggested that she was deluded in this belief".

In the instant hearing, HHJ Hess was asked to make decisions on the following (but against the background of the litigation thus far):

• residual matters arising out of an abandoned variation application;

• two (ultimately three) fresh applications which the wife sought permission to make under the terms of the Civil Restraint Order; and

• a number of costs issues.

After consideration of the material put before him, HHJ Hess reached the view that only one of the wife's fresh applications stood a realistic prospect of success (relating to the publishing of a transcript of the husband's cross-examination).  The wife was granted permission to make her application.  However, in relation to the other applications, HHJ Hess formed the "clear impression that another challenge to substantive issues was being teed up [by the wife] and that this route would be used as another way of dragging on this dispute into another area of satellite litigation".  HHJ Hess indicated that the wife probably had a good technical point in relation to service but that a good technical point was not necessarily a meritorious point.  HHJ Hess also observed that he was dealing with a Civil Restraint Order which gave the court additional powers to decline a remedy.

HHJ Hess was also asked to deal with an order for costs made by Roberts J against the wife in the sum of £5,750 and four reserved costs orders totalling £37,192.18.  HHJ Hess found that the costs that had been incurred were very substantially the wife's fault. The wife had pursued (i) a variation application and had then abandoned it without going through the proper procedures, and (ii) a meritless application to set aside the 9 September 2014 order.  HHJ Hess also observed that the wife had been "uncooperative throughout".  However, HHJ Hess took into account the wife's ability to pay and came to the conclusion that there was almost no prospect of any of these costs being paid by the wife.  HHJ Hess observed that "the argument over costs [was] almost entirely academic".

Taking into account all of these matters, HHJ Hess decided that "the fair way to proceed [was] as follows:

(i) I shall refuse the wife's application for leave to issue an application to set aside the default costs certificates.

(ii)   I shall make no order as to costs in relation to the proceedings since October 2015.

(iii)  I shall leave the existing costs liabilities in place, whilst noting that any enforcement is subject to the £64,000 credit figure."