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Finance and Divorce Update, May 2017

Frances Bailey, Principal Associate and Naomi Shelton, Associate, both of Mills & Reeve LLP, analyse the news and case law relating to financial remedies and divorce during April 2017

Frances Bailey, Principal Associate and Naomi Shelton, Associate, Mills & Reeve LLP 

As usual, this month's update is divided into two parts:

A. News in brief

Progress of family law bills in parliament halted by the prorogation of Parliament on account of the general election on 8 June 2017
Parliament's most recent session was prorogued on Wednesday 3 May 2017 which brought to an end nearly all parliamentary business, pending the outcome of the general election on 8 June 2017.  The Children and Social Work Bill currently waits Royal Assent and the progress of other bills related to family law are halted pending the state opening of the new Parliament.  Public Bills (including Private Members' Bills) may be carried over from session to the next, subject to agreement. 

Statistics indicate that a third of cohabitants believed they shared the same rights as married couples (or did not know)
A YouGov survey, commissioned by national law firm Mills & Reeve, surveyed more than 1,000 cohabiting couples across the UK with results showing that only 14% of cohabitants surveyed bought their home as tenants in common and more than one third of those surveyed are unaware that they do not have the same legal rights as their married counterparts.  75% of those surveyed believe unmarried couples who live together should have the same legal rights as married couples.  The Cohabitation Rights Bill had its second reading in the House of Lords in December 2014 though there has been little progress since.  The Bill has been reintroduced, with the date of the second reading yet to be announced.

Updated House of Commons briefing on 'no fault divorce' published
The briefing
was published on account of the recent Court of Appeal judgment in Owens v Owens [2017] EWCA Civ 182 and speeches recently made on the matter. 

Populus survey shows that three in five people think that civil partnerships should be available to all
According to the survey, 57 % of respondents answered that all couples should be allowed the right to obtain a civil partnership.  20% of respondents said that civil partnership should be removed altogether and 24% said that they did not know or did not mind what should happen.  Current debate of the issue follows the recent decision of the Court of Appeal in Steinfeld and Keidan v Secretary of State for Educations [2017] EWCA Civ 81The Civil Partnership Act 2004 (Amendment) Bill, which would extend the availability of civil partnership to opposite sex couples. was due to have its second reading in the House of Commons on 12 May 2017.  The bill's progress is now halted due to the prorogation of Parliament on account of the general election on 8 June 2017.

High degree of variation in decisions for adoption and placement orders across the country
Data collected by the Adoption Leadership Board shows variances in the number of adoption decisions being  made and a range of different trends in decision-making at local and regional level.  In many local authorities there has been a fall in adoption decisions of over 50% whilst in other areas, there have been significant increases.  Andrew Christie, Chair of the Adoption Leadership Board, said "more needs to be done to understand why, in some parts of the country, adoptions seems to have been ruled out as an option for children where previously this would have been considered along with other options".

B. Case Law Update

Work v Gray [2017] EWCA Civ 270 (The Master of the Rolls, Lady Justice King and Lord Justice Moylan) 11 April 2017
This case attracted much media coverage. It concerns the husband's ("H") appeal against Mr Justice Holman's order (see Gray v Work [2015] EWHC 834 (Fam)) where Holman J had rejected H's argument that he had made a special contribution justifying an unequal division of wealth in his favour and had instead divided the family's wealth equally between H and the wife ("W").  The appeal provided an opportunity for the Court of Appeal to review the scope of "special contribution" in financial remedy cases.

The facts should be familiar but to recap, by the time of the Court of Appeal judgment, H was nearly 48 and W 46.  Both had been born and brought up in the USA.  They had begun cohabiting in 1992, married in 1995 and had had two children.  The marriage had ended in 2013.

Although both working when they first met, neither had had any significant financial resources.  In 1997, and after completing his MBA, H began working for the Lone Star private equity fund, initially in Texas.  He later moved to Japan where W and the children joined him.  The family lived in Japan until 2005, and then in Hong Kong until 2008.  H had had a very successful career and by March 2015 the pot of assets totalled c. $225 million.  The marital wealth had all been accumulated through H's employment with Lone Star. 

Between 2013 and 2015, the couple had spent £3million on legal fees and associated costs, a sum described by Holman J as "profligate and unnecessary". 

H argued that, at first instance, he should have been awarded 61% of the matrimonial property (note that 61% is in the middle of the bracket proposed by Charman [2007] EWCA Civ 503 at para 90). Relying upon Lord Nicholls' comments about "exceptional earnings" in Miller v Miller; McFarlane v McFarlane [2006] UKHL 24, H's case was that the focus of the special contribution "exercise" should be on the nature or quality of the contribution – what has been done or the impact or value of what has been done - and not the qualities of the person making the contribution.  Accordingly, when considering financial contribution, the court should give primary weight to the quantum of wealth generated during the marriage.  Only if the quantum alone was insufficient to be regarded as exceptional should the court then consider whether there was some other quality "either:

• in the manner or duration of the production [of the wealth]; or

• in the skill or individual quality of the contributor

which renders it sufficiently exceptional to make it inequitable to disregard". 

Having undertaken that exercise,  H said the court should then assess whether any such special contribution was "unmatched", by considering whether the other party had made an equal contribution so significant that it would also be inequitable to disregard it. 

Adopting this approach, on quantum alone, H contended that he had demonstrated that he had made a special contribution.  Had Holman J then asked himself whether W had made an equal (i.e. exceptional) contribution, he would have determined that she had made no more than a "normal" contribution, insufficient to match H's.

Resisting the application, W argued that H could point to no error in either the factual determinations nor any error of principle adopted by Holman J. The elevation of the scale of wealth to a primary consideration, as proposed by H, she said would "increase the prospect of discrimination against the home-maker".  Furthermore, the suggestion by H that the court must assess whether the other party had "matched" the exceptional contribution was simply wrong.

W did a raise a new argument before the Court of Appeal, one which was based on discrimination.  She sought to assert that the "special contribution" was an inherently discriminatory concept as "more home-makers are women and more money-makers are men".  Lip-service she said was paid to the "theoretical possibility of a special domestic contribution because, in reality, it is 'impossible' that such ever will be found". 

The issues before the Court of Appeal were: 

• what is the proper approach to the determination of whether a party has made a special contribution which, justifies an unequal sharing or division of the marital wealth?;

• does the concept of special contribution remain valid or should it be discarded as being discriminatory?;

• had Holman J applied the proper approach?; and

• if his decision was wrong, what division of the matrimonial property should have been made?

After reviewing the authorities on both contribution and special contribution, the Court of Appeal concluded that Holman J had accurately summarised the guidance from both Miller and Charman, with one exception: that he was wrong to refer to special contribution being 'unmatched'.  Instead, the focus is on the disparity of contribution and whether there is a sufficient disparity to make it inequitable to disregard.  The reference to an 'unmatched contribution' can lead, as was actually reflected in H's submissions, to the conclusion that, if one party has made an exceptional contribution, the court must consider whether the other party has made an equal, matching, contribution. 

Also agreeing with Holman J that the use of the word "genius" is unhelpful, the Court of Appeal found that it is sufficient for the court to determine whether the contribution is wholly exceptional.  This requires the court to look both at the nature of the contribution and to determine whether it derives from an exceptional and individual quality.

Holman J was found to therefore have both correctly identified the approach to special contribution and to have correctly applied it.  Whilst, H tried to argue that the judge had failed to accord sufficient weight to his contribution and given excess weight to W's contribution, the Court of Appeal found that the judge had neither erred in law, nor applied a wrong principle, meaning H had failed to demonstrate that the decision was wrong.  The decision the judge had come to – that there was not such a disparity that it would be inequitable to disregard H's contribution – was a decision he had been entitled to come to and which he had fully explained. 

Noting that the outcomes in the "very small number of reported cases in which special contribution ha[d] been raised as an issue" made it difficult to sustain H's submission that there was uncertainty in the manner in which special contribution was being determined, the Court of Appeal unhesitatingly concluded that nothing since Miller or Charman had shown that the principles were uncertain, erroneous or had caused unfairness.  Neither had there been demonstrated such a change in perceptions of fairness since Miller and Charman to warrant a different approach to special contribution, although different people, judges included, might hold different views as to fairness.  Although concepts of discrimination, equality and fairness change with time, this, the Court of Appeal said, was reflected in the changing jurisprudence on the application of section 25 over time. 

Therefore, the developments both parties suggested to the approach to special contribution were also rejected.  W's submission that special contribution requires a combination of financial and other contributions had no principled basis unless special contribution as a concept could be shown to be discriminatory.  Absent discrimination, the Court of Appeal said, it was artificial to seek to exclude one form of contribution save in combination with another.  It would also be likely to raise other issues such as whether the other form of contribution would also have to be exceptional or whether it is the combination which would have to be.  This would significantly broaden the evidential inquiry undertaken by the court and be likely to take us back to the undesirable consequences referred to by Coleridge J in G v G (Financial Provision: Equal Division) [2002] 2 FLR 1143.  This would be inconsistent with the overriding objective and was not required for a fair outcome to be achieved.

Meanwhile, H's approach would serve, at best, to complicate the analysis and, at worst, would unfairly elevate a financial contribution above other forms of contribution.  It was also artificial to seek to separate the contribution from the contributor.  The word "contribution" the Court of Appeal concluded clearly incorporated all aspects including the nature of the contribution, its consequences and the individual's role in making the contribution.  The contribution had to derive from something the contributor had done.  It went without saying that if the contribution did not derive from the "exceptional and individual quality" of the contributor, it could not be a special contribution.

Finally, the Court of Appeal dealt with the Wife's argument that the current approach to special contribution was discriminatory.  The Court of Appeal found it was not.  As only one special contribution case (Cooper-Hohn v Hohn [2015] 1 FLR 745) since Charman had resulted in an unequal division of matrimonial property, it was difficult to substantiate a discrimination angle.  The fact that special contribution was confined so that it reflected a significant, substantive difference, which did not require extensive evidential investigation went towards preventing discrimination.  Moreover, such a significant, substantive difference gave rise to a special contribution irrespective of whether the contribution has been made by the husband or the wife. 

H's appeal was accordingly dismissed and the original award upheld. 

Chai v Peng and others [2017] EWHC 792 (Fam) (Mr Justice Bodey) 6 April 2017
The final hearing of the aptly described "titanic" litigation which has lasted over four years, and has cost the parties £9million in legal costs. The judgment of Mr Justice Bodey is extensive, running to 147 paragraphs. 

To recap, the husband ("H") is aged 78 and the wife ("W") is 70.  They married in 1970.  Both are Malaysian by origin but W obtained Australian and Canadian citizenship after spending significant amounts of time living in those countries with the couple's five children.  The marriage broke down in 2012 and W started divorce proceedings in this jurisdiction in 2014. 

A number of hearings have taken place since the commencement of proceedings but the issues that fell to Mr Justice Bodey to be determined were the value, content and division of the family assets.  W wanted an equal division of the total assets which she claimed were worth almost £206million.  H had offered £15million including almost £6million which had already been awarded to W through an MPS order and a legal services payment order.  H argued that W's award should be determined by reference to needs and not sharing. 

Bodey J's reasoning may be summarised as: in circumstances where a couple have been married for 42 years and have five children together, the approach is clearly going to be sharing.  It could not be disputed that H had been a hugely successful businessman but pitched against W's contribution as mother and homemaker, there could be no departure from equality.  In applying this approach, Bodey J rejected the husband's arguments about 'a sideways look' at Malaysian law, pre-acquired wealth and special contribution.
Bodey J found that the total asset pot was worth £161million.  He ordered that H's interest in land in the UK, Australia and Canada be transferred to W plus a lump sum of £40.6million, with deductions being made for sums W had already received.  In total , W was awarded £64.5million.

H has since applied to the Court of Appeal for permission to appeal the decision.

Mickovski v Liddell [2017] EWCA Civ 251 (Lady Justice Macur and Lady Justice King) 5 April 2017
This case concerned an application for permission to appeal an order capitalising term maintenance following the husband's ("H") application for variation.

The couple had been married for 11 years and had two children, aged 7 and 5 at the date of the permission hearing.  The wife ("W") was their primary carer.  A consent order had been made in March 2013 providing W with a lump sum of £555,000 (her interest in the family home), a half share of all the bank accounts and periodical payments at the rate of £8,400 a year for seven years. 

In 2015, H applied to vary downwards the periodical payments.  He argued that there had been a significant drop in his earnings, that he was financially dependent on his second wife, that both his and his second wife's jobs were precarious and that W's income had significantly increased.  W, who was cohabiting and had purchased a new property, said that she did not receive assistance from her cohabitee, and that her earnings had plateaued. 

In February 2016, at the end of a day-long hearing, during which both H and W gave oral evidence, and after reading written submissions from both parties, Recorder Cubdy refused H's application for a downward variation.  Instead, she capitalised the periodical payments at £34,000 (despite the fact W had made an open proposal to accept £30,000 in capitalisation).

She found H to be "belligerent, unhelpful and dictatorial", and also found that his evidence was "unclear … confusing … wholly unbelievable".  Various specific findings were made including that H's lifestyle had not been, in any way, affected by the alleged decrease in his earnings, that he had access to funds and was not financially reliant on his new partner to the degree he was claiming. 

By contrast, the judge found that W received no real financial support from her cohabitee, she worked hard to provide for the children (one of whom had special needs) and her earnings had indeed reached a plateau.  

In seeking permission to appeal, H accepted that the burden of proof fell on him to establish the basis for a variation and that the court was unable to go behind the first instance judge's findings of credibility or fact.  He argued, though, that, absent any articulation of the correct legal framework (the judgment did not expressly consider W's budget, contextualised as against the marital standard of living, articulate the judge's findings as to W's generously interpreted needs, her shortfall of income as against needs, H's ability to meet those needs and/or the fairness to the parties as to capitalising any ongoing maintenance etc.), Recorder Cubdy must be taken not to have applied it. 

Whilst the Court of Appeal agreed with H that if the first instance judgment was read in isolation it did tend to substantiate H's submission that the judge had not undertaken a proper analysis of whether W needed ongoing support and/or the merits of capitalising the periodic payments, they found that the judgment could not be read in isolation.  This had been a one-day case, with a wealth of written submissions, where each side had given evidence, and where the judge had delivered an ex tempore judgment at the end of the day.  In the context of the whole, the Court of Appeal therefore found that the judge had been entitled to reach the conclusion she had and they would have been surprised if she had reached any other conclusion. 

Finding that the prospective appeal had no real prospect of success and dismissing H's application, the Court of Appeal also allowed W's costs (W was acting in person) of £3,453. 

Giggs v Giggs [2017] EWHC 822 (Fam) (Mr Justice Cobb) 17 February 2017
Finally, the case of Giggs deals with the ongoing issue of press reporting of financial remedy proceedings and the interplay between articles 8 and 10 of the ECHR.

The husband ("H") is a former professional footballer who has a number of business interests as well as roles in football coaching and management.  He has, in short, a high media profile. 

Following the breakdown of his marriage, financial remedy proceedings were started late last year. 

He initially applied for both (1) an order excluding the media altogether and (2) reporting restrictions.  He subsequently abandoned his application for an exclusion order (accepting that none of the exceptions in FPR 2010 rule 27.11(3) – namely that (a) the exclusion of the media was necessary (i) in the interests of any connected child, (ii) for the safety of any party, witness or connected party, or (iii) for the orderly conduct of proceedings or (b) justice would be impeded were the media not excluded  – applied).

However, he successfully obtained a reporting restriction order to prevent the media naming either of the couple's children and / or reporting the parties' financial information whether coming from their forms E disclosure, statements, replies to questionnaire, oral evidence, submissions or otherwise. 

It is noteworthy that the application was not contested by the media or by the wife, who maintained a neutral stance (via a letter from her solicitors) in relation to the application.

From press coverage of the case, it appears that that H may run a special contribution argument in the substantive financial remedy proceedings.  The outcome of that argument will be awaited with interest.