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Wodehouse v Wodehouse [2018] EWCA Civ 3009

The Court of Appeal discharges a lump sum order made against a third party trust in the context of financial remedy proceedings.

This was the second appeal from a financial remedy order made in 2016. There were two issues before the court: (i) whether the Deputy District Judge ("DDJ") had jurisdiction to make the lump sum order provided by him (i.e. an order against a third party); and (ii) whether he erred in the making of the pension sharing order. The key issue in this case was the first issue. 

This case concerned a divorcing couple in their 60s who had a lengthy marriage (19 years to separation) with no children. A theme of the marriage was said to be the Husband's disastrous management of financial affairs which resulted in him being declared bankrupt on two separate occasions. The Wife found herself in dire financial circumstances following the Husband's second bankruptcy in 2010, one year prior to the parties' separation.

The parties had entered into a series of property transactions during the marriage, the details of which are set out in the judgment. One of those properties was repossessed in 2010 by the mortgagee, with a shortfall of 97,000 (the "Mortgage Shortfall"). The only real property in the pot at the trial was the matrimonial home, which had been purchased in joint names and funded in full by the Husband's family trust (the "Trust").

At trial, one of the trustees of the Trust (who had intervened) was not asked, or cross-examined, in order to ascertain whether or not the Trust would be in a position to, or willing to, advance further moneys to the Husband if requested to do so. All parties accepted before the Court of Appeal that there was therefore no evidence before the trial judge that would have allowed him to conclude that the assets held within the trust were financial resources available to the Husband to fund any lump sum order (see Thomas v Thomas [1995] 2 FLR 668).

At trial, the DDJ proceeded on the basis that no funds would be made available to the husband by the Trust. He ordered that the matrimonial home be sold and that the proceeds be divided equally, deducting from the Husband's share repayment of historic loans made by the Wife as well as the Mortgage Shortfall (the "Lump Sum"). The DDJ also ordered that both parties being impecunious, the Husband's pension should be divided equally by way of PSO. 

The order was settled by Wife's counsel. The order for the Lump Sum was drafted to include a liability on the part of the Trust in respect of payment of the lump sum, in the event that the Husband failed to do so (the "Lump Sum Order"). Both the Husband and the Trust protested to the wording, stating that it exceeded the terms of the Judgment. The DDJ disagreed, stating that the draft adequately reflected his intentions behind the order.   

At the first appeal, the Circuit Judge is said to have appreciated the difficulties behind the Lump Sum Order (i.e. that the court has no power to order lump sum payments against third parties), but then ultimately determined that there had been no procedurally irregularity. That appeal was allowed to the limited extent that the Husband should only be liable for half of the Mortgage Shortfall.

Before the Court of Appeal, it was argued on behalf of the Husband that the Lump Sum Order was made ultra vires and that there could be no salvaging of the order by providing a lump sum on a Thomas v. Thomas basis. It was also submitted that the DDJ was wrong to order repayment of the loans made many decades ago in the context of this lengthy marriage. The Court's attention was also drawn to the fact that the DDJ had accepted that the proceeds of the matrimonial home would be insufficient to meet the Lump Sum.

On behalf of the Wife, despite initial arguments that the Lump Sum Order could more properly be categorised as a secure lump sum, it was ultimately accepted that the Lump Sum Order could not stand.

The Court of Appeal concluded that the way in which the Lump Sum Order came into being was procedurally unfair and that there was simply no jurisdiction for the Court to make the Order. The Lump Sum Order was therefore discharged.

As to the issue of pensions, the Court concluded that the DDJ was substantially influenced by the needs of the Wife and the Order made was one that was properly made within the discretion of the Court. That part of the appeal was therefore dismissed.

Given the outcome in relation to the Lump Sum Order, although the Court of Appeal would have remitted the matter for rehearing, the Wife was clear that she could not face the prospect of further litigation. This therefore marked the end of the litigation. 

The President added an observation that the error of law in this case provided evidence of the value of creating a specialist Financial Remedies Court.

Summary by Oliver Woolley, barrister, 1GC Family Law 

For the full text of the judgment click here