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The Eureka Moment of English Creativity from EU Law: English pension sharing after a foreign financial settlement

David Hodson OBE, partner with The International Family Law Group, shares the Eureka moment when English common law creativity and obscure EU legislation enabled the making of an English pension sharing order in respect of an English pension after a financial settlement on divorce abroad but when there was no longer any ongoing connection with England – apart from the pension.

David Hodson, Partner, The International Family Law Group

David Hodson, Partner, The International Family Law Group 

The Eureka moment occurred at about 4:15 pm on a Saturday afternoon.  I was working on the third edition of Jordans' The International Family Law Practice. I am the editor and author of a number of the chapters.  With each new edition, I have found one particular chapter is the most complicated.  Chapter 9 on enforcement of foreign financial orders - one of the most complicated topics for any family lawyer.  And that was even before we had the incredibly complex EU Maintenance Regulation.

As I systematically worked my way through the Regulation, I came to Article 7.  The fifth Article to deal with jurisdiction.  It provides a basis of jurisdiction we don't find in English law.  It is in some ways a sweeping up clause but intended by the EU to have a very narrow and restrictive operation.  It has been previously unused in English family law, as far as I was aware.

Perhaps something in the half-time football results got the brain whirling in a lateral fashion.  Why could this provision not be used to solve a major problem, and injustice, frequently experienced in our practice in implementing and enforcing pension sharing arrangements made abroad?  Might it work? 

My firm, The International Family Law Group, frequently helps law firms around the world to deal with English-based assets.  It had become a continually frustrating problem where there had been a financial settlement abroad, invariably made into an order of a family court, to share an English-based pension only then to discover that England had no jurisdiction to make the order.  Would Art 7 be the solution?  Let me set out the problem. 

What is the situation? 
A couple on relationship breakdown abroad reach a financial settlement which involves sharing a pension based in England and Wales (or sometimes elsewhere in the UK).  It may be pursuant to a foreign court order or a binding financial agreement.

What is the attitude of English pension companies?
They will not permit a pension share unless there has been an order of the English court.  They will not share a pension based on a foreign court order or on an agreement.

Can England grant a freestanding pension share order?
No.  It has to be pursuant to financial proceedings ancillary to a divorce or, exceptionally, where there has been a foreign divorce.

How do pension sharing arrangements occur after a foreign divorce?
The family courts of England and Wales have power to make a pension sharing order when there has been a divorce abroad.  It is found in Part III Matrimonial and Family Proceedings Act 1984.  This groundbreaking legislation, then new across the world but subsequently copied in some countries, gave power and jurisdiction for the English court to make financial orders when there had been inadequate provision for one spouse in the divorce proceedings abroad and yet there was a connection with this country.  It was then and remains a vital opportunity to produce fairness and justice when this has not occurred abroad.  My firm undertakes many of these cases. 

Technically it should only be when there has been inadequate financial provision on the divorce abroad.  In practice over many years the English courts have made pension sharing orders where these orders have already been made by a family court abroad or have been contained in a binding financial agreement abroad.  It is more a matter of international comity: the English family courts implementing arrangements reached abroad.

What is the jurisdiction, the connecting factors, for this 1984 law?
This is where, in the past, problems have arisen.  For the family courts to make these pension sharing orders via Part III, there must be a close connection in order to confer jurisdiction on the English courts.  Originally, in 1984, the requirement was that either party must be domiciled here or habitually resident here for 12 months.  Additionally from June 2011 jurisdiction might arise under EU law by reason of the EU Maintenance Regulation.  This is conferred primarily by Article 3 and in this context, where these matters are by consent following the foreign financial settlement, is dependent on the residency of either party in this country.  Art 3 has four parts and the third and fourth do not apply as they are ancillary to divorce proceedings, which will of course have occurred abroad, or children proceedings.  Art 4 allows jurisdiction based on choice of court but again this follows residency.  But certainly jurisdiction in this EU law extended the cases where English pension sharing orders could be made after a foreign settlement.

Does this cover all cases?
No.  And this is where the problem has often arisen.  It is not uncommon that a person may have come to England and worked here for a period of years and built up a pension but now has no ongoing connection with England such as domicile or residency.  For example, they may have retired to live abroad or have moved abroad permanently; again with no ongoing domicile or residency here. 

Many international families have no ongoing connections with a country even though they may have built up a pension there.  For instance, I worked for two years in Sydney, Australia, qualifying also as an Australian lawyer, and by law was required to contribute to an Australian superannuation, pension scheme.  But Australia would have no jurisdiction now based on residency or similar. 

This has been a major problem.  Often we, and other specialist International family lawyers in England, have had reluctantly to advise that an English court cannot make the required pension sharing order.  Invariably the consequence is that the divorce financial settlement has had to be unpicked and a different form of settlement negotiated.  This has increased costs and difficulties.

Over the years, specialists in this area, including myself, have lobbied the Ministry of Justice to make just a small amendment to the 1984 Act.  All that is needed is to add a jurisdiction clause based on the existence of an English pension and all of these problems would be solved.  I remember in the late 1990s a conversation with a senior Ministry of Justice official who told me that the Ministry was absolutely committed to this much-needed piece of reform but they had not been able to find any space in a piece of legislation to include it.  As might be imagined, I didn't find it impressive then nor subsequently when nothing was done.

In the meantime, many divorcing families abroad, having thought they had concluded a fair settlement, now had to review what could be done if there could be no English pension share.

This was the major problem which the Eureka moment might have resolved.

Is there now an answer?
Yes.  It is Art 7 of the EU Maintenance Regulation.  Its short title is in Latin: Forum necessitatis.  Forum of necessity.  The full wording in its very technical obscurity is as follows:

"When no court of a member state has jurisdiction pursuant to articles 3, 4, 5 and 6, the courts of a member state may, on exceptional basis, hear the case if proceedings cannot reasonably be brought or conducted or would be impossible in a third state with which the dispute is closely connected.  The dispute must have a sufficient connection with the member state of the court seised."

In terms it says there is jurisdiction to make a maintenance, needs-based order if no other country could make an order, and of course no other country could make the English pension sharing order on an effective basis.  It is described as an exceptional basis (which in Baldwin v Baldwin [2014] EWHC 4857 (Fam) Parker J held to mean "by way of exception" rather than extraordinary).  Yes, it is exceptional because otherwise there would be no jurisdiction for these orders.  The dispute must have sufficient connection with the country, and it does because the pension is here. 

It is fundamental that the pension sharing order is required to meet the needs (maintenance) of one of the parties.  Almost always this is the case with a pension sharing order, even in big-money cases.  If Art 7 worked, it would enable a pension sharing order to be made even though there is no domicile or residence of either party in this country.

What was Art 7 intended for?
This is where I started to doubt.  EU legislation has recitals which are far more extensive than the opening remarks in UK parliamentary legislation.  Recital 16 refers to Art 7 but describes it in the context where proceedings cannot be brought in the other country because of civil war or the applicant could not be reasonably expected to initiate or conduct proceedings in the other country.  In other words, very extreme and exceptional circumstances.  The EU policymakers clearly weren't contemplating humdrum pension sharing.  Nevertheless on the wording itself of Art 7 – and in the English common law tradition it is that wording which overrides any recitals – there did seem to be power.

What happened? 
A Eureka moment is best shared.  I immediately emailed my good friend David Salter (a leading family law pension expert) who agreed with me that it could work in order to provide the necessary jurisdiction.  We had to wait to find the right opportunity.

That soon arrived in a Michigan case where David and I found ourselves as the opposing expert witnesses in family court proceedings in that US state and in which there was an English pension as a significant asset.  David and I were expected to tear each other to pieces for the edification of the US justice process.  I obtained permission of my US principal to speak to my opposing expert witness, picked up the phone to David and we agreed this was a case where the Art 7 basis of jurisdiction could be used.  The US law firms were bold and brave and allowed David and I to give it a go, as it were, on the basis that there was no higher court authority for this.  The US case settled without a hearing.  We got the paperwork together and obtained the English order to share the English pension.  I concede there were mutual congratulations. 

My firm has now undertaken many of these pension sharing orders after a foreign pension sharing arrangement.  We have worked closely with David Salter because in this complex area the judge making the consent order likes to know that the other party has had at least advice if not ongoing representation.  Many of the cases have been dealt with through the Harrogate Family Court where it has been possible to put these cases before a specific judge who has previous experience.  But we have collaborated successfully in this way with other lawyers around the country and with proceedings in other courts. 

In our first such case at the Central Family Court, there was a pause and delay, and pessimistically we feared the worse.  The matter was transferred to District Judge Robinson, the senior judge who oversees enforcement cases.  The order came back made as drafted.  Since then other cases have gone through the CFC.

We have had Armed Forces pension cases, with the benefit of working with a solicitor who combines expertise in family law and Armed Forces law.  There were a couple of additional complications but again it went through on the jurisdictional basis.

My colleague, Michael Allum, an associate solicitor at my firm, deals with these matters on a day-to-day basis.  He has created standard forms, pro forma statement and letters to the other party, to the pension company and to the court to make the process as efficient and cost-effective as possible.  We work closely with a couple of specialist financial services advisers to make sure the party abroad can deal with their pension share. 

How long does it take?
This depends upon the court involved and some courts in England are faster than others.  The pension company also has to be involved and approve the court papers.  We would hope the order could be made by the court within about three or four months of first instructions.  The pension providers would then have up to four months to implement the order, although in our experience they are often much quicker.  Financial services advice should always be taken about the new pension arrangement being created after the pension share has occurred. 

Are there any other requirements?
Yes.  In order to come within the particular EU legislation, there should be particular wording in the final divorce financial order or in the binding financial agreement.

Is timing important?
The value of the pension for sharing purposes is taken as at the date the English pension sharing order is made.  Pension values can fluctuate quite significantly over a relatively short period of time and therefore timing can be crucial.  Accordingly, once the foreign agreement or order is made, it is important to act promptly in obtaining instructions to start the English proceedings.

What about when we leave the EU?
The EU Maintenance Regulation is an incredibly obscure and complicated piece of law.  It has some major problems in practice.  There is no need for it to continue once we leave the EU.  There is a very good replacement in the 2007 Hague Maintenance Convention.  However the Hague does not have jurisdictional elements.

When the Law Commission announced it was undertaking a review of financial enforcement powers, it said it would not cover international enforcement.  I lobbied for this pension sharing aspect, although international, to be incorporated within their brief and fortunately they agreed.  In the submissions in the consultation process made by my firm, we argued very strongly for new law to give jurisdiction to make pension sharing orders when there was an English-based pension and after a pension sharing arrangement abroad.  This was discussed by the Advisory Group of which I was a member.  I was delighted when their final report Enforcement of Financial Orders (Law Com No 370) recommended a change in the law to give jurisdiction in English national law for pension sharing powers after a foreign pension sharing arrangement.  We now need this to be in force at the time we leave the EU.

English family law in its common law setting has incredible opportunities for creativity and flexibility to enable to be done whatever (within reason) needs to be done to produce a fair and just outcome for families and their children.  But sometimes the legislation specifically does not allow this to happen.  Sometimes other law and even EU law has to be used to produce the fair outcome and desired settlement. 

I am delighted that the Eureka moment on a Saturday afternoon has produced an opportunity for jurisdiction to produce a fair outcome and implementation for settlements reached abroad.  Many parties around the world now have the outcome they wanted but was previously impossible. 

I'm grateful for the assistance of my colleague, Michael Allum, for his work in respect of these matters. 

David Hodson OBE is an English solicitor, mediator, arbitrator, an Australian qualified solicitor and barrister and a part time deputy district judge at the CFC.  He is editor and a primary author of The International Family Law Practice (Lexis Nexis), "the definitive work in this area" (Family Law).  He received the OBE in 2014 for "services to international family law".  He is visiting Professor at the University of Law.