IQ Legal TrainingBerkeley Lifford Hall Accountancy Services

Home > Articles > 2019 archive

Financial Remedy & Divorce Update, July 2019

Sue Brookes, Principal Associate, Mills & Reeve LLP analyses the news and case law relating to financial remedies and divorce during June 2019.

Sue Brookes, Principal Associate with Mills & Reeve LLP.

As usual, this update is provided in two parts:

A. News

The Divorce, Dissolution and Separation Bill

On 20 June 2019, the House of Commons Library published a briefing paper on the Bill in preparation for the second reading of the Bill on 25 June. It included the views of the Christian Institute, the Coalition for Marriage, the Law Society, Relate and Resolution about the Bill.

Relate, Resolution and the Law Society welcomed the removal of blame and the introduction of the six-month time-frame. The proposed legislation would reduce conflict between couples and allow them to move forward constructively and focus on their children's wellbeing.

The Coalition for Marriage and the Christian Institute criticised the six-month time-frame as being too short when compared to two-year consent petitions.

The second reading of the Bill was introduced by the Lord Chancellor who commented that, while many believe in the institution of marriage, divorce law should not have the destructive effect it often does. The Bill is not anti-marriage but an attempt to minimise unnecessary conflict, which is particularly important where a couple have children.

Generally, there was support for the Bill during the debate which has now passed the House of Commons committee stage.

The main concerns raised related to the Bill making it too easy to divorce and not supporting couples to stay married by giving them more time to reflect, as well as the separate matter of the impact of parental conflict on children.

While the Lord Chancellor acknowledged that there are concerns about spouses being divorced against their will, he noted that the reality is marriages are not saved by the ability to contest a divorce and the current law creates confrontation that undermines any prospect for reconciliation as well as co-operative parenting.

There was also support for the Bill from Labour, who asked if the government would consider reintroducing legal aid for early legal advice for divorcing couples, as even with the proposed divorce process, couples will need support to understand their options. This was not addressed.

Successful extension of Financial Remedies Courts project

The Financial Remedies Courts (FRC) project aims to deal with financial remedies cases efficiently and effectively to reduce the financial and emotional impact on separating couples. 

On 20 June 2019, Mostyn J announced its successful expansion from the original West Midlands (Birmingham) pilot zone to eight new zones. FRC ticketed judges have been confirmed and lead judges are in post in all zones, which are now operationally up and running. These zones are London, West Midlands, East Midlands, Mid and West Wales, South East Wales, Liverpool and Cheshire, Humberside and South Yorkshire, Cleveland, Newcastle and Durham, and North and West Yorkshire. Further geographical expansion announcements are expected in the coming months.

Mostyn J aims to ensure cases are dealt with by ticketed judges who have experience and knowledge of financial remedies work. Allocation procedures are in place in all zones. Judges of all levels, including Circuit Judges and Recorders, will be involved with first instance cases.

The approval of financial remedies consent orders will be moved to the FRCs as soon as administratively feasible.

Flexible operating hours pilot begins on 2 September 2019

The flexible operating hours pilot is set to begin on 2 September 2019. It will consist of late sittings for family and civil cases at Manchester Civil Justice Centre and early and late sittings for civil work at Brentford Country Court.

HMCTS announced its plan to pilot in Manchester and Brentford in November last year. The aim of the pilot is to test whether civil and family court buildings can be used more effectively and whether late and early sittings give people improved access to justice.

Form D8 updated to refer to online application process

HM Courts and Tribunals Service has updated Form D8 to make reference to the online application process available for litigants in person.

Law Commission review launched into marriage ceremonies in E&W

The two-year project will review the current laws on how and where marriages can take place – many of which date back to the 19th Century. It will look at removing unnecessary red-tape to increase the choice and lower the cost of venues. It could open up opportunities for civil ceremonies at sea, in private homes or military sites for service personnel.  Separately, the Government will accelerate plans to allow civil weddings and civil partnerships to be held outside and will look to implement these through secondary legislation, subject to any necessary consultation.

View from the President's Chambers May 2019

• The President has visited 24 courts and aims to have visited all courts by October, or early November. On the subject of collective well-being of those working in the system, Sir Andrew says that "it is crystal clear that there is indeed a need to own up to the impact of the current workload in emotional, social and physical terms on each of us in whatever role we play in the Family Justice system."

• Sir Andrew is confident that the senior staff at HMCTS are "entirely clear that the unacceptable service levels currently experienced from the paper-based centres is not to be repeated" as the new national Civil and Family Service Centre at Stoke on Trent takes on more of the work of the Divorce Service Centres.

• Following the recent decision in M v P [2019] EWFC 14, Sir Andrew is preparing Practice Guidance on Defective Divorce Petition/Decrees

• Irrespective of the progress of 'Reform', Sir Andrew considers that the Family Court should be making fuller use of the current technology to conduct short, without notice, hearings by telephone, as is now commonplace in small civil claims.

• There will be established a 'Transparency Review', during which all available evidence and the full range of views on this important topic can be considered (including evidence of how this issue is addressed in other countries). The aim of the review will be to consider whether the current degree of openness should be extended, rather than reduced.

President releases draft guidance on reporting in the Family Courts

The draft guidance follows an appeal in Re R (A Child) (Reporting Restrictions) [2019] EWCA 482 Civ heard on 15 February 2019. 

B.  Case Law Update

FW v FH [2019] EWHC 1338 (Fam) (Mr Justice Cohen) 24 May 2019

The wife (W) is 36. The husband (H) is 45.

The key issues in dispute were the value of H's shares in a private companies and whether or not the shares should be sold immediately.

Grant Thornton had been appointed as SJE to value the company. However, both sides were dissatisfied with their report and obtained permission to instruct their own valuer with W instructing Jon Dodge of Walton Dodge and H instructing Faye Hall of Smith and Williamson.

The parties were some £9.5m apart in their valuations with the biggest issue being whether or not a terminal value attaches to the company.

W argued H's shares worth £26.9million. Jon Dodge, appointed by W, asserted that a terminal value of £18.8 million should be attached to allow for likely future cash flow beyond 2023, because the company would not be wound up and it would have in place an infrastructure and projects in progress which would be of significant value to any purchaser.

H asserted a value of £17.5 million. Faye Hall, on behalf of H, refuted the concept of a terminal value because she had already included in her capitalisation of the Business As Usual forecast to 2023, many ongoing projects which are not yet identified or certain. She had not discounted these projects for uncertainty and so she had already built in a terminal value. There was no basis upon which the profitability of an unidentified project could be assessed beyond 2023.

Cohen J (the judge) took into account that he must not strive to value the un-valuable (Versteegh v Versteegh [2018] EWCA Civ 1050) and as per Miller v Miller; McFarlane v McFarlane: [2006] UKHL 24 a valuation exercise is an art and not a science.

The judge concluded that he should adopt Faye Hall's figures. He accepted that the volatility of this business did not permit any accurate basis on which a terminal value could be assumed and, if it had been, a greater discount would need to be applied to the cash flow forecast.

It would also be arguable that to take into account unidentified projects which may commence in 2021/22 onwards would allow W to share profits created years after the end of the marriage, which would not be proper. Although W argued that H was trading with W's share of the business, this was only a partial answer as the judge's order provided for W to receive her funds in 2023, when only part of the terminal period will have passed.

The valuers had agreed that, if H were to realise his business interest as he wanted, no discount should apply but if W succeeded in achieving an earlier sale there would need to be a discount (H arguing for 30 – 40% and north of 50% if he had to sell only part of his shareholding and W arguing for 20 – 25% or 25-30% for a partial sale. Neither expert had heard evidence from H's business colleague, who had made it clear how unwelcome a sale of H's share would be by the rest of the business owners. The judge concluded that issue, together with the inability to control or enforce the company's exit plan, would influence the amount likely to be paid for the shares by a prospective purchaser.

W wanted H's shares to be sold immediately and argued that, if they had not been sold in a year, a receiver should be appointed. Her "very much second choice" was an order for a lump sum payable in tranches over a period of time. H wanted to wait to realise his business interests over at least a five year period so as to maximise their value.

The judge concluded that, if there were to be a forced sale now, fairness could only be done by an order that all of H's shares be sold and that a minority discount of 30% should be applied to the value. However, he would not order an immediate sale because the company has just had its two worst years trading and an immediate sale would cause significant financial loss to both parties. Ordering a receiver to be appointed after 12 months would not bolster the price achieved or enhance the management of the business in the intervening period. The relatively limited and anecdotal history of court ordered sales did not give any confidence of a successful outcome. It would therefore be in both parties' interest for the sale to be deferred.

The decision highlights the limitations of considering a business's terminal value and demonstrates that business valuations will be tested based on fairness of outcome.

The judge also considered if there should be a Wells discount and concluded there should not be because this is a business which is expected to be sole and it is at H's insistence that the delay is occurring.

The judge ordered H to pay W a lump sum of £8,948,930 being one half of the value of his business assets on a 40% shareholding, with a reduction on a pro-rata basis if H's shareholding diminished to 38% because of a share grant to employees. The payment was due to be made by 1 August 2023 with interest accruing after that date. Until then, W would receive maintenance of £50,000 p.a. (c. 35% of H's salary) and 35% of any net bonus or dividends receipts.

The other key issue was the housing. H lived in a property with an agreed value of £1.25m. H therefore put W's housing needs at £1.3m on the basis that their two children would stay with both of them and neither had housing needs greater than the other. W wanted to stay in the parties' other property worth £5.35m, but with equity of only £200,000 after repayment of a Coutts' mortgage and a £1.08m loan owed to her father. The judge accepted that this property significantly exceeded W's needs (which he placed at £2m) but found it was up to the bank and her father (as lenders) to decide whether or not she could stay in the property in practice. It was not for him to force a sale of a property with equity of only £200,000. The equity would cover only the stamp duty and costs of moving if she were to purchase a new property for £2million, which would mean her having to borrow that sum to be able to rehouse elsewhere. She was therefore able to stay in the property, which was transferred to her as she wished.

MB v EB  [2019] EWHC 1649 (Fam) (Mr Justice Cohen) 25 June 2019

This was a preliminary issues hearing before Cohen J (the judge) to determine the length of the parties' marriage, the impact of a separation agreement entered into in 2011 and if there had been any marital acquest.

The wife (W) was aged 63. The husband (H) was 58. Neither had children. They met in 1999 and married in April 200, without any prior cohabitation. In 2004, W had been taken into custody in Austria in connection with a scam and, upon her release, had to remain in Austria. In the same year, H met another woman and, in early 2005, he moved in with her in England. H's new partner became pregnant and H told W he wanted a divorce.

Between 2005 and 2008, H and W continued to see each other and H stayed with W on occasion. They now disputed how often and the judge found it was considerably more than W asserted but less than H had argued.

In 2008, both parties took legal advice and they continued to communicate with each other directly and then through their respective solicitors. The correspondence referred to the relationship having broken down and the terms of a potential financial settlement. The negotiations dragged slowly and it was clear that neither party was keen on divorce. However, throughout 2010, H's solicitors sort to pressure W to accept a settlement by continually threatening divorce.

A deed of separation was eventually signed on 7 February 2011, recording that the parties had lived separate and apart since 2004 and that, in full and final satisfaction of any claims, W would pay H a lump sum of up to £245,000 to purchase a property of his choice and a further lump sum of £35,000.

The parties continued to communicate as they had been doing up to that point and in 2013, when H fell into dispute with the owners of an adjacent flat to his property, W came to his rescue by purchasing the adjacent property and H's property was put into their joint names. W also paid H more than she was obliged to under the deed of separation.

By 2016, relations had become increasingly strained. H was then living with another new partner. W instructed solicitors to write to H to complain about his behaviour. H issued divorce proceedings in August 2017 and applied for a financial remedy order.

H now argued the marriage ended in 2016. W argued it ended in 2004.

Following Mr Justice Williams in IX v IY [2018] EWHC 3053, the court must look to identify a time at which the relationship had acquired sufficient mutuality of commitment to equate to marriage. This applies equally to determining the end of a marriage. Marriages come in all shapes and sizes and what may be important to one couple may be trivial to another.

This was an unusual relationship and a difficult case to determine, as the emotional and physical connection endured long after 2004 when the parties had last lived together. They were apart more than they were together. Their sexual relationship had concluded by 2004 and H was engaged in sexual relationships elsewhere. Each had their own properties and neither could enter the other's without permission. They were each financially independent when they were apart, although W paid for both when they were together. Neither wanted divorce and each still felt a commitment to the other.

Taking everything into account, the judge concluded that the parties did separate in 2004, as recorded in the separation deed. However, there remained a clear emotional involvement which continued between them and neither had moved on emotionally until 2016. It would therefore be inappropriate to exclude from all further consideration the whole of the period after 2004 in relation to the financial remedy claims.

The judge easily determined that there had been no marital acquest and that W had throughout been dependent upon her family.

In relation to the impact of the deed of separation, H argued that he should not be bound by it because it was entered into under threats/duress and undue influence/pressure and that W abused her dominant position. He also argued that holding him to the agreement would leave him in a real predicament of need.

The judge referred to Radmacher v Granatino [2010] 2FLR 1900. He noted that the process leading up to the agreement was initiated by H and the agreement was negotiated around the exact terms which H had initially sought.

The parties had not given disclosure, but this is an option which is open to the parties. As per King LJ in Versteegh v Versteegh [2018] EWCA Civ 1050, if it is clear that the party understands the implications of the agreement and intended that the agreement should govern the financial consequences in the event of divorce, that is sufficient to give effect to the agreement. H knew that W was well off, did not have to work and came from a wealthy family. He did not need to know more.

To answer the question posed in A v B (No 2")[2018] EWFC 45 what would the parties have said if they had been asked in 2011 if either had claims left against the other, they would have answered in the negative. This was a significant factor, but not conclusive.

The judge was more troubled by H's needs argument. W had given H the capital he had sought, but it was unclear why his income needs had not been given greater consideration. However, he did not have to determine that at the preliminary issues hearing.

The parties had already spent nearly £1million on litigation – a sum completely disproportionate to what was at stake. The further consideration of whether H needed any more should therefore be done speedily and without significant further expenditure. The judge went on to make clear that H should not be under any illusion that his debts should be cleared or that his would end up with a significant maintenance award which would inevitably be capitalised.

O v B-M [2019] EWFC B23  16 February 2019

Mr Recorder Allen QC (the judge) had to consider the application by Ms O for a declaration of marital status under section 55 (1) (a) Family Law Act 1986. She argued that she had been married to Mr B-M in a customary marriage ceremony in Ghana on 3 January 2009. Mr B-M accepted that the event took place but denied that it was a marriage and, if it was, he argued that he did not consent to a marriage as he was not aware what it was at the time.

The judge heard the evidence from both parties and additional witness and oral evidence from Dr Kwadwo Osei-Nyame Jnr who had prepared an SJE report confirming that what took place was a customary wedding in two distinct stages: first the "knocking ceremony" and secondly the "engagement ceremony" which is the actual marriage ceremony.

The judge was satisfied on the evidence that it was a customary marriage ceremony as Ms O had argued. However, he was not satisfied that either Mr B-M or his family had consented to a marriage taking place. As consent was a necessary condition to the marriage being valid under Ghanaian law, the marriage could not be recognised under English law.

The judge specifically commented on the content of the SJE's report which had referred to the customary marriage being "proven by overwhelming evidence". An SJE gives evidence as to his/her opinion and what the opinion proves or does not prove is a matter for the trial judge. All that an expert can provide is opinion. The judge accepted Dr Kwadwo Osei-Nyame Jnr's opinion that what took place was a two stage customary marriage ceremony. However, he rejected any further opinion expressed by the SJE that Mr B-M and his family would have been well aware of the nature of the ceremony and that it was therefore clear that they had consented to the marriage, because the SJE could not form such a view on Mr B-M's subjective beliefs. It was contrary to Mr B-M's own evidence, which the judge accepted.

Following the circulation of the draft judgment Ms O changed solicitors and sought to change the judgment by making a request for clarification and further reasons.  The judge firmly dismissed the request on the grounds that the request was really an attempt to re-argue the case on a different legal basis, asking the court to answer different questions and to grant different relief

Weil v Gulacsi Case (C-361/18) EU:C:2019:473

The claimant ("W") obtained judgment in Hungary against the respondent ("G"), in 2009, in relation to rights in property arising out of their unregistered non-marital partnership.

In 2017, W sought to enforce the judgment in England, which led to the Hungarian court referring two questions to the ECJ on the enforcement procedure and the scope of the 2001 Brussels Regulation ((EC) 44/2001).

The ECJ ruled that a court hearing an application under Article 54 of the 2001 Brussels Regulation for a certificate (in the standard form at Annex V) certifying that a judgment is enforceable in the member state of origin must ascertain whether the dispute falls within the scope of that Regulation, if the court which gave the judgment did not adjudicate on whether the Regulation was applicable when it gave the judgment. This conclusion was supported by the fact that the enforcement procedure precludes any review by the court in the enforcing state, and that, by ascertaining whether it is competent to issue the certificate, the court is continuing the previous judicial proceedings by guaranteeing the full effectiveness of those proceedings.

The ECJ considered the exclusion (in Article 2(1) of the 2001 Brussels Regulation) of "rights in property arising out of a matrimonial relationship". It held that the provision must be interpreted as meaning that an action concerning an application for dissolution of a property relationship arising out a de facto (unregistered) partnership comes within the concept of "civil and commercial matters" within the meaning of Article 1(1) of that Regulation, and falls within the material scope of that Regulation.

In terms of the relevance of this ruling for the Recast Brussels Regulation (applicable to proceedings instituted from 10 January 2015), although the requirement for a declaration of enforceability (exequatur) has been removed, the judgment creditor must obtain from the court of origin a certificate (in the standard form at Annex I) certifying that the judgment is enforceable in the state of origin without any further conditions having to be met, and containing details of the judgment, interest and costs. As regards the ruling on scope, Article 2(a) of the Recast Brussels Regulation was extended to exclude from its scope "rights in property arising out of a matrimonial relationship or out of a relationship deemed by the law applicable to such relationship to have comparable effects to marriage". Accordingly, the ECJ's ruling on that issue would not be applicable.