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Finance & Divorce Update June 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 May 2016

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

This month's update is divided into two parts: the first part is a News Update and the second comprises a Case law update.

A. News in brief

Council adopts proposal for Decision to authorise enhanced co-operation

The Foreign Affairs Council adopted, on 12 May 2016, a proposal for enhanced co-operation to be authorised in the area of jurisdiction, applicable law and the recognition and enforcement of decisions on the property regimes of international couples.  Eighteen Member states have requested to take part in the enhanced co-operation, with the remaining ten member states able to join at any time.  The United Kingdom is not one of the initial eighteen.

MOJ survey on committal

The MOJ has published an online survey to assess how much is understood about the committal application process.  The survey covers all committal cases arising from civil contempt, including family proceedings.

Resolution submits evidence to Bach Commission on Access to Justice

Resolution has submitted evidence as part of its campaign on legal aid following LASPO.  The evidence contained an overview of the impact that cuts in legal aid have had on separating families and provided a series of recommendations for reform designed to improve access to justice for people facing separation and divorce.

Psychologists as expert witnesses in the Family Court

The Family Justice Council has published a guide providing information regarding the use of psychologists as expert witnesses in the family courts. To access the guide, click here.

CSA case closures

The DWP has published experimental statistics of the CSA case closure programme covering the period from June 2014 to December 2015.  As of December 2015, over half of cases with a CSA liability have started the case closure process, 279,000 cases have had their CSA liability ended and 13% of cases where liability has ended have now applied to the Child Maintenance Service.

New pension tracing service

A new DWP website has been launched to help people locate lost pension savings which are currently estimated to be in the region of a total of £400m.

Evidence obtained illegally in family and civil proceedings

The Bar Council has issued revised guidance (although not guidance as such for the purposes of the BSB Handbook I6.4) relating to the general approach to using such evidence, claims to privilege, Imerman and breach of confidentiality.  Please note the "Important Notice" at the end of the document relating to the document's status and effect.

To access the guidance, click here.

The Civil Legal Aid (Procedure) (Amendment) (No. 2) Regulations 2016 (SI 2016/561)

These were made on 4 May 2016 and come into force on 30 May 2016. They amend the Civil Legal Aid (Procedure) Regulations 2012 so that where one party is financially eligible for funding of civil legal services, in the form of a Mediation, Information and Assessment Meeting, a determination that the other party also qualifies for legal aid funding for that meeting may be backdated, if certain criteria apply.

B. Case Law Update

Trott v Trott & Anor [2016] EWFC B35

This was an application to commit the husband and his new wife to prison for breaching orders made within financial remedy proceedings between the husband and his former wife. The husband had sold a Mercedes Sportshome which had been subject to a section 37 of the Matrimonial Causes Act 1973 order and had failed to pay the net proceeds of sale of a caravan to a solicitor.  He had also disposed of monies from the sale of his shares in a taxi business which had, again, been subject to a Section 37 order. The husband's new wife had failed to disclose bank statements and evidence of the purchase of a property in accordance with a District Judge's direction.

The husband admitted all three breaches.  In respect of the Motorhome, however, he indicated that an agreement had been reached with the wife that the vehicle would be sold in order to allow funds to be released for the purchase of another vehicle for their adult son.  The husband had, however, failed to comply with the conditions as to the use of the proceeds.  The monies from the sale of a caravan had, whilst not been paid to the solicitor, been put to the use of the parties' adult children, on the husband's case with the wife's agreement (which was not accepted by the wife).  In respect of the proceeds of sale of the shares, the husband had invested the money in other business ventures thus enabling him to continue to make payments in respect of the mortgage over the former matrimonial home and to maintain his new family.  He argued that the funds remained available for consideration in the course of the financial remedy proceedings.

The husband's new wife also admitted the alleged breach but sought to put it into context. She pointed to the acrimonious nature of the proceedings between the husband and his first wife, and to the "overt hostility" that the wife had shown towards her, including damage to her property.  She also pointed to the fact that, without representation, she had not appreciated the implication of her actions and the importance of compliance. She referred, furthermore, to the fact that she was the full-time mother of her and the husband's young daughter.

The Judge referred to the need for him to consider whether the breaches were such that custodial sentences were warranted and, if so, to consider the extent to which the sentences could be suspended. 

The Judge found that all of the breaches crossed the custody threshold. In the case of the husband, whilst the Judge indicated that he may have been persuaded that suspended sentences would be appropriate in relation to the first two breaches, the third breach placed the case into a "different category".  Accordingly, the sentences could not be suspended and a three month overall sentence was imposed.

In relation to the husband's new wife, a 14 day custodial sentence was handed down, but was suspended.

TJB v RJB [2016] EWHC 1171 (Fam)

This was an application by a former husband for declarations as to the meaning and effect of an order that had been made by consent in March 2012.

The order had provided for a property to be transferred to the wife and for the husband to pay a lump sum of £800,000 to the wife within two years, with provision for interest in the meantime.  Until such time as both the property had been transferred and the lump sum paid, the order provided for the husband to pay to the wife maintenance, with provision for the level of maintenance to be reduced pro rate in the event of a partial payment by the husband of the lump sum.  In the event of the husband falling three weeks into arrears in respect of the periodical payments, then a property owned by the husband in Switzerland was to be placed on the market for sale with the net sale proceeds being applied towards the lump sum.  Of the lumps sum, however, only £215,000 had been paid and the husband had, therefore, been in arrears for over two years to the extent of £585,000 plus interest.

The wife had first sought to enforce payment by judgment summons, but had been unsuccessful.  She had therefore sought enforcement in Switzerland.

The husband sought three declarations as follows:

"Paragraph 1 of the order ... dated 2 March 2012 represents capitalised maintenance within the meaning of the Lugano Convention 2007 (as declared by the court in that order) and does not represent a division of property under the matrimonial property regime within the meaning of Article 1.2(a) of the Convention.   Paragraph 1 of the order falls within the scope of the Lugano Convention."

"The order … dated 2 March 2012 contains no provision for enforcement of the lump sum for capitalised maintenance other than the continuation of periodical payments for joint lives or until re-marriage as provided in paragraph 2. … The order contains no provision for sale of property in the event of failure to pay the lump sum in full."

"In the circumstances where the lump sum provided for in paragraph 1 of the order has not been paid in full and periodical payments continue to be paid pursuant to paragraph 2 of the order, this court [viz the English court] remains ceased of proceedings in respect of spousal maintenance and Article 27 of the Lugano Convention is engaged."

The Judge indicated that it was "patent to [him] that the present application [was] part of procedural or tactical manoeuvring to defeat, or at any rate further delay, payment to the wife of the balance of the lump sum which [was] now already long overdue".

The Judge found the first declaration to be, in part, "completely otiose and unnecessary" and, in part, "no more than the flip side or obverse of that which [had] already been declared".  The Judge found that the second declaration, whilst "strictly speaking, no more than a truism", risked misleading the Swiss court into thinking that the English court could no longer enforce the lump sum and that there was nothing that the English court could do by way of enforcement provided that the husband continued to make the maintenance payments.  The Judge made the point that the court had "ample power" to make an order for the sale of the Swiss property under section 24A of the Matrimonial Causes Act 1973.  

In relation to the third declaration, it was necessary to consider the terms of Article 27 of the Lugano Convention, which is headed "Lis Pendens – Related Actions" and provides as follows:

"1. Where proceedings involving the same cause of action and between the same parties are brought in the courts of different states bound by this Convention, any court other than the court first seised shall of its own motion stay its proceedings until such time as the jurisdiction of the court first seised is established.

2. Where the jurisdiction of the court first seised is established, any court other than the court first seised shall decline jurisdiction in favour of that court."

Whilst the Judge did not disagree that the English court remained seised of maintenance, the question of the extent to which the proceedings directed to enforcement in Lugano involved the same cause of action was "a more difficult and moot point".  The Judge indicated that it seemed to him that there was "a difference between this court continuing to be seised with regard to maintenance, and indeed continuing to be seised with regard to enforcement, and the Swiss court being able to be seised with regard to enforcement".  The Judge referred to the proposed third direction as revealing "the trap" into which the husband was seeking "to lure" the court.  The Judge went on to say that it was obvious that the husband was seeking to obtain the third declaration in order to enable him to submit to the Swiss court that the English Court remained first seised and that, accordingly, the Swiss court had to decline jurisdiction under Article 27. 

The Judge was not prepared to make any of the declarations sought.  He did indicate, however, that he was somewhat baffled by the failure of the wife to apply to the English court for an order for sale, and he commented that, if there was an issue over the extent to which the property should be sold in Switzerland, it seemed to him that the English court was more appropriate than the Swiss court to make a decision given that it was an English order in respect of which the husband was in breach.

Singha v Heer [2016] EWCA Civ 424

The background to this case was very fact specific and is, therefore, outside the scope of this summary.  In short, however, this was an appeal against an order made by his Honour Judge Gerald in November 2013 which contained a declaration relating to the beneficial interest that the Respondent had in a property which was registered in the name of the husband and which had been the subject of an undertaking by the husband within divorce proceedings (that he would not dispose of or deal with the legal or beneficial interest in it). 

In 2010, during ancillary relief proceedings, a property adjustment order had been made for the transfer of the property to the wife so that she could sell it and take the first £125,000 out of the proceeds of sale, with the balance reverting to the husband.

The husband and the Respondent had been childhood friends and had been in partnership together, acquiring properties. The husband and the Respondent had, however, fallen out and the case revolved around the extent to which three letters written by the husband to the Respondent between 2005 and 2009 had established that the husband had, in fact, been holding the property on trust for the Respondent. 

In the lead judgment of the Court of Appeal, Lady Justice Arden reviewed the findings of the Judge and went on to consider each of the letters in turn. She found that the Judge had been correct to dismiss the contention that any of the letters or indeed all of them taken together constituted a declaration of trust, a finding with which Lady Justice Macur and Mr Justice Baker both agreed.

Bezeliansky v Bezelianskaia [2015] EWCA Civ 1586

This was an interlocutory application relating to an order made by consent by Mr Justice Holman in January 2015.   That order related to properties in Moscow and Monaco, owned by the parties, and a property in Paris, owned by a company, which were not subsequently transferred in accordance with its terms.  The matter had then come before Mr Justice Moor, who had varied the order to provide for the husband's shares in the company that owned the Paris property to be transferred to the wife and for the property to be sold.  From the proceeds of sale, the mortgage was to be discharged and the balance of the net proceeds was to be paid as follows:

• £1.9m to the wife to reflect the fact that the husband had failed to transfer to her the property in Moscow;
• £250m to the wife by way of arrears of child maintenance;
• some additional sums to the wife by way of costs; and
• the remainder to the court to held to its order.

The husband sought the relevant part of the order of Mr Justice Moor to be stayed, the wife having made an application in France for an order that the company sell the Paris property to her for nil consideration and having started "an administrative process for the enforcement" of the order.

Lady Justice Black made the point that it is not normal for the Court of Appeal to grant a stay. "Generally speaking, a litigant should not be deprived of the fruits of their litigation pending appeal."  

The wife had offered undertakings which enabled the Judge to say that a stay was "unnecessary".  The undertakings would ensure that the company was not ordered to sell the property to the wife but also that, if the husband's shareholding was transferred to the wife, it could not then be sold by her or used to achieve a sale pending the appeal.

T v R (Maintenance after remarriage: agreement) [2016] EWFC 26
This was an application by a wife to strike out her former husband's applications, under sections 31 and 35 of the Matrimonial Causes Act 1973, to vary a periodical payments order.

The parties had entered into a consent order in 1999 which had provided for the husband to make periodical payments to the wife on a joint lives basis.  However, the order had contained a recital to the effect that, if the wife were to remarry, the husband would continue to make periodical payments to her.

The wife had subsequently remarried a couple of years later and the husband had continued to make payments, albeit at the sum originally agreed with no uplift for index linking.

In about September 2015, however, the husband had stopped making payments and the wife's solicitors had written to him what is described in the judgment as "effectively" a letter before action notifying the husband of the wife's intention to issue proceedings to enforce the agreement contained in the recital in the Queen's Bench Division as a civil debt.

The wife's application to strike out the husband's applications was made under Rule 4.4 of the Family Procedure Rules 2010, which provides as follows:

"…the court may strikeout a statement of case if it appears to the court –

(a) that the statement of case discloses no reasonable grounds for bringing or defending the application;

(b) that the statement of case is an abuse of the court's process or is otherwise likely to obstruct the just disposal of the proceedings;

(c) that there has been a failure to comply with a rule, practice direction or court order…"

After setting out the above Rule, Mrs Justice Parker referred to the case of Wyatt v Vince [2015] UKSC 14 and, in particular, to paragraph 23 of the judgment of Lord Wilson, in which he had dealt with the construction of the words "no reasonable grounds" and "abuse of court process" within Rule 4.4.

Parker J referred to the wife's solicitors' response to the husband's application under section 31, that the periodical payments order had come to an end and there was, therefore, no power for the court to vary it, as probably being right.  Most of her judgment, however, focused on sections 34 and 35 of the Matrimonial Causes Act 1973, and the husband's application under the latter.  Section 34 has the subheading "Validity of maintenance agreements" and goes on to define the term "maintenance agreement" as meaning "any agreement in writing made, whether before or after the commencement of this Act, between the parties to a marriage, being –

(a) an agreement containing financial arrangements, whether made during the continuance or after the dissolution or annulment of the marriage; or

(b) a separation agreement that contains no financial arrangements in a case where no other agreement in writing between the same parties contained such arrangements …".

Section 34(2) then goes on to define "financial arrangements" to include rights and liabilities with respect to the maintenance or education of any child.

Section 35 is then headed "Alteration of agreement by court during lives of parties" and provides the power for the court, in certain circumstances, to vary or revoke financial arrangements contained in a maintenance agreement to the extent that it is just to do so, having regard to all the circumstances. 

The wife's case was that the husband could not seek to vary the order as it had come to an end or seek to vary the original agreement as, once the agreement had been incorporated into the order, the underlying agreement had fallen away and there was no power to vary it because there was no power for the court to make an order in her favour after the remarriage.  The Judge's interpretation of the order was, however, that the agreement had not taken effect until the wife's re-marriage.  

The wife also argued that the agreement was not a maintenance agreement within the meaning of the 1973 Act.  Consideration was given, for example, as to the extent to which the agreement had been in writing and also whether a maintenance agreement could exist within the context of a consent order relating to ancillary relief proceedings, but the Judge was satisfied that the agreement was in writing and that there was nothing to say that a maintenance agreement could not be contained in a consent order.  The Judge was clear, therefore, that she was dealing with an agreement for maintenance which was a maintenance agreement.

The Judge found that the husband's application was not an abuse of process in any sense and that it disclosed reasonable grounds for bringing or defending his application.  She was satisfied that the agreement constituted a variable maintenance agreement.   She commented, furthermore, that "to draw a distinction between a husband who has entered into a periodical obligation to a wife outside the statutory menu, and a husband who has an obligation by order of the court, and to say that the latter can apply to vary and the former cannot, is potentially arbitrary, discriminatory, and in breach of Article 6 ECHR", although she acknowledged that she had not heard full argument on that particular point.

The Judge declined to strike out the husband's application.