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Finance and Divorce Update September 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 August 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 August 2016 Edward Heaton, Principal Associate and Jane Booth, Associate, both of Mills & Reeve LLP

As usual, 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

Family lawyers could be forced to offer fixed fees

The Legal Services Consumer Panel has suggested family lawyers should be mandated to work under fixed fees as it ramped up its call for regulatory intervention to improve transparency in the market. You can read more about it here.

Estonia participates in EU Regulations supporting international couples

The European Commission Decision (EU) 2016/1366 of 10 August confirms the participation of Estonia in enhanced co-operation in the area of law applicable to divorce and legal separation.

B. Case Law Update

Morris v Morris [2016] EWCA Civ 812

The Court of Appeal set aside a suspended committal order (made following judgment summons) due to procedural irregularity. The case is worth reading in full.

In summary, the husband appealed a number of orders:

1. a suspended committal order made on the wife's application by way of judgment summons for arrears due under a periodical payments order;

2. a variation of the periodical payment order that reduced the monthly amount payable by the husband from £2,000 to £1,750; and

3. an order that the husband pay the wife's costs of £10,000.

Two issues required determination:

1. whether the committal order had been validly made (procedurally and substantively); and

2. whether the variation order had been shown to be wrong.

Committal Order

During the hearing the wife conceded that the committal order had to be set aside because of various procedural failures. This included the fact that the husband had been required to file and serve evidence in breach of the Family Procedure Rules 2010 ("FPR 2010") (and his right to remain silent) and that he had given oral evidence without being told that he had the right to remain silent.

Despite this concession, the parties sought to persuade the Court of Appeal that they should take the opportunity to provide guidance on committals made by way judgment summons.

The Court of Appeal accordingly allowed the appeal against the suspended committal and costs orders because of procedural irregularity. However, it declined to give guidance on issues relating to committal by way of judgment summons although it did highlight the following procedural considerations that practitioners should keep in mind:

* a judgment summons is a form of criminal proceeding (Mubarak v Mubarak [2001] 1 FLR 698);

* a respondent cannot be compelled to give evidence (r.33.14(4) FPR 2010);

* r.33.9 - 33.17 FPR 2010 address committal by way of judgment summons;

* an unrepresented respondent must be informed of their right to legal aid and be given the opportunity to obtain representation; and

* a respondent has the right to remain silent and must be informed of this right.

Here procedural errors had arisen because the applications for a committal order and a variation of the periodical payment order had been determined at the same hearing.

Periodical Payment Order

The husband confined his case to two matters in respect of the appeal from the variation order:

1. "The judge failed properly to carry out the section 25 exercise in that she "isolated one factor (wife's increased earnings) and used that as the entire basis of her decision";

2. A proper weighting of the section 25 factors, taking into account the husband's decreased income, his housing needs, his debts and the wife's improved financial circumstances, should have led to a substantial reduction in the maintenance and/or the imposition of a shorter term ceasing on the youngest child's 18th birthday."

The Court of Appeal dismissed the husband's appeal against a variation of the periodical payment order, confirming that on a variation application there is no requirement for the court to consider matters afresh in every case. The Court of Appeal held that to require every case to be looked at de novo is contrary to the overriding objective and the obligation for cases to be dealt with proportionally.

The Court of Appeal were unconvinced that the length of term of the periodical payment order needed to be reviewed at this time and the husband failed to demonstrate that the periodical payment order was either flawed or outside the bracket of a fair award.

Goyal v Goyal [2016] EWCA Civ 792

This was an appeal by a husband against an order that his interest in a pension annuity policy should be transferred or assigned to his wife and that, in the meantime, any income generated by the policy should be paid into an account in her name.

By way of background, the parties were married in 2003 and separated in 2011, with a daughter who was four at the time.  Since their separation, there had been ongoing proceedings with no fewer than 65 separate orders.  The husband was in banking. McFarlane LJ gave the lead judgment of the Court of Appeal in which His Lordship describes how the judge at first instance's "overall conclusion was that the husband's addiction to spread betting had led him to dissipate the entirety of the family finances almost to the point of their extinction."

His Lordship also said [para 4], "As the judge found, by the time of the separation the husband had lost, conservatively, over £500.000 which had been funded by his earnings and latterly, by borrowing."

McFarlane LJ's judgment indicates that the judge at first instance had found the husband to be "digressive, evasive, argumentative and, hence, unreliable as a witness" and that he had deliberately withheld disclosure documents and information within the financial remedy proceedings and that the first instance judge had therefore concluded that what was left should be used for the benefit of the wife and the child. 

There was an issue at first instance, however, in relation to pensions, in respect of which the wife's claims were kept open.

At the time of the commencement of the divorce proceedings, the husband had had two pension policies, one with UBS and the other with Standard Life.  The husband had, however, subsequently converted the policies into a single annuity policy with a cash equivalent transfer value of £87,000.  Whilst the pension policies had been English policies, administered in England, the annuity policy was in India.

McFarlane LJ describes that the judge at first instance had found that the transfer of the policy had been a "manifestly deceitful course of action…designed to defeat the wife's legitimate claims", despite the husband's case that he had had an agreement with a resident in India to assign the benefit of the pension policies to him in return for discharging certain debts. 

The judge believed, however, that he did not have the power to make a pension sharing order or a pension attachment order in relation to the annuity as it was in India.  Therefore, instead of making such an order, he made a mandatory injunction against the husband to transfer or assign the annuity to the wife and, in the meantime, divert any income from it to her.

The husband appealed and, by the time of the hearing, his case had been effectively recast "into a single general assault upon the court's jurisdiction to make the orders" that the judge had made.

Whilst the judge had not identified the jurisdiction upon which he had relied when making the mandatory injunction, counsel for the husband submitted that the only power to make the injunction lay in section 37 of the Senior Courts Act 1980, there being no "general residual or inherent discretion for the court to make any order that might be thought to be necessary to ensure that justice be done between the parties if such an order is a substantive order and falls outside the statutory scheme embodied in MCA 1973".  Use of section 37, however, related only to the making of ancillary rather than substantive orders, the section not establishing a free standing jurisdiction to make the latter.

It was common ground, by the time of the appeal, that the judge had, in fact, been wrong about the Court's inability to make a pension sharing order in relation to the annuity.  Under section 21A of the Matrimonial Clauses Act 1973, a pension sharing order is defined as an order which "provides that one party's shareable right under a specified pension arrangement… be subject to pension sharing for the benefit of the other party and specifies the percentage value to be transferred".  The term, specified pension arrangement, is then widely defined in Section 46 of the Welfare, Reform and Pensions Act 1999, the definition including "an annuity or insurance policy purchased, or transferred, for the purpose of giving effect to rights under an occupational pension scheme or a personal pension scheme".

In his judgment, Lord Justice McFarlane made the point that it was plain that, had the judge understood that he could have made a pension sharing order in respect of the annuity, then he would have done so.  The judge had been in error and he had gone on to make a mandatory injunction in order to achieve "what he saw as the right and fair outcome".  The husband's counsel was "entirely right in categorising the use of SCA 1981, s 37 as being confined, in all circumstances, to orders which are ancillary to, or supportive of, a separate substantive or legal equitable right".  There was "no separate residual or inherent jurisdiction available for deployment to fill in any perceived gaps or to meet what the court may see as the justice of the case if that outcome cannot be achieved by an order within the statutory scheme".  There was, therefore, "no legal basis for the judge to make the order that he did".  Accordingly, the husband's appeal succeeded and the relevant paragraphs of the judge's order were set aside.

The husband's counsel further argued that the wife had failed to present her claim correctly in respect of a pension sharing order and that it would be "wholly unjust and unfair for her now to benefit by having a second run in the lower court with the opportunity to put her case in proper procedural order…".  Lord Justice McFarlane indicated, however, that the husband's counsel's submissions in this respect needed to be seen within the context of a case "where information about the policy was achieved piecemeal, often by the wife's own endeavours, and in circumstances where the husband was acting in a manner which is as far away from the requirement of free and frank disclosure as it is possible to contemplate".  Furthermore, the correct procedure had not been followed, in part because of the first instances judge's "erroneous view that he lacked jurisdiction, as a matter of principle, to make a pension sharing order with respect to an Indian policy".  Whilst the offending paragraphs of the judge's order were to be set aside, there was no justification for the Court to dismiss the wife's pension sharing order application on its merits.  Her claim for such an order, therefore, remained open and had to be remitted for redetermination.