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Financial Remedy & Divorce Update, August 2019

Naomi Shelton, Associate, Mills & Reeve LLP considers the important news and case law relating to financial remedies and divorce during July 2019.

Naomi Shelton, Associate, Mills & Reeve LLP

As usual, this update is provided in two parts:

A. News

Guernsey consults on divorce reform

A recent public consultation on reform of Guernsey's 80-year old divorce laws could see significant reforms being made.  Currently, divorce petitions must be filed through an Advocate and one of five facts must be proved.  The consultation has shown there is an appetite for removing fault from divorce, removing the ability to defend or contest a petition and the ability to apply for divorce online.  Proposals being considered include a simplified notification system as will be introduced in England and Wales.  Jersey has also recently consulted on divorce law reform, where currently there is a bar on initiating divorce proceedings within the first three years of marriage. 

New President of Supreme Court appointed

Lord Reed will succeed Lady Hale when she retires in January 2020.  Lord Justice Hamblen, Lord Justice Leggatt and Professor Andrew Burrows will join the Supreme Court during 2020. 

Calderbank consultation launched

The consultation (brought by the Family Procedure Rules Committee Costs Working Group) seeks views as to whether the Family Procedure Rules 2010 should be amended in relation to the treatment of Calderbank offers when determining issues relating to costs. The consultation closes on 31 October 2019. 

Next steps announced for opposite-sex civil partnerships

In publishing plans for extending civil partnerships to opposite-sex couples by the end of the year, the government has opened up the proposals to a short consultation dealing with conversion of opposite-sex couples to convert their marriage to a civil partnership.  Any regulations dealing with conversion will be implemented in 2020. 

Child Support (Miscellaneous Amendments) Regulations 2019

A number of changes have been made including: 

• Changes to the recovery of maintenance arrears from benefits including allowing arrears to be recovered from universal credit and for maintenance to be deducted from universal credit where there are earnings

• The amount which may be deducted from benefits is, in both cases, increased from £1.20 per week to £8.40 per week. In both cases no deductions from benefits for recovery of maintenance arrears may be made if the non-resident parent in receipt of benefits is liable to pay maintenance.

• Qualifying lenders and trustees or managers of occupational pension schemes will be required to provide information to the Secretary of State to enable the Secretary of State to carry out its functions under the 1991 Act

• When calculating the gross weekly income of a non-resident parent, the figure notified as employment income by HMRC is no longer to be that taken before any allowable deductions from earnings.

Progress of Courts and Tribunals (Online Procedure) Bill

The Bill, if enacted, will establish a judicially chaired committee tasked with developing new, simplified rules around online services in civil, family and tribunal proceedings.  It has now received its second reading in the House of Commons and the committee stage has also completed.  The Bill is now due to have its report stage and third reading on a date to be announced.

Law Society evidence submitted to Bill Committee on the Divorce, Dissolution and Separation Bill

Whilst welcoming the introduction of the Bill, the Law Society considers that there are still important details that need to be addressed to ensure that the Bill is clear, fair and accessible to those who need to use it. These include:

• On sole petitions, the period of notice should begin from the date of service, for example when the respondent has formal receipt of notice.

• The period of reflection should be moved to the beginning of the divorce period rather than the end of the process (between the conditional order and final order) as set out currently in the Bill.

• Irretrievable breakdown should be a ground for divorce; however, it should not be proven at the initial notice. Instead the form of words needed by the law to say that the marriage has broken down should be on the application for the conditional order (decree nisi) stage, if this is retained.

• The two-stage decree is removed and replaced with a single decree after the applicant/respondent or both confirm intention to proceed with divorce application.

• No final order (decree absolute) should be granted until a financial order has been made, for example a Form A issued, unless by consent of the parties or the paying party can show there is no financial risk to the respondent/applicant.

• Statutory provision should be included for signposting to marriage and relationship support services.

• The current £550 court fee for divorce applications adds an extra financial hurdle to what is already a costly process for many separating couples. The government's new online divorce system will cut the cost of administration for the courts and this should be reflected in application fees.

The Bill is now due to have its report stage and third reading on a date to be announced.

The Law Commission begins review of marriage laws

The Commission aims to propose options for a simple and fair system to give modern couples meaningful choice about their wedding ceremony. The project will:

• consider where a wedding should be able to take place

• consider how to remove unnecessary red tape which can hamper choice and increase the cost of wedding venues

• aim to ensure that the law works for all couples and all faiths, including those who are not as well served by the current buildings-based system

• seek to make the law simpler and more certain, so that it is clear whether a couple's marriage is legally valid.

The remit for the project includes developing a scheme that would allow non-religious belief groups, such as humanists, and independent celebrants to celebrate weddings, enabling Government to widen the routes to legally binding ceremonies if it chooses to do so.

Pension Advisory Group publishes guide to pensions on divorce

PAG came together to produce a clear good practice guide to address the shortfall in understanding of how to treat pensions on divorce. The guide, which has been a work in progress for two years, aims to address the wide variation of financial settlements nationally which stems from a lack of understanding of how pension valuations, sharing and offsetting work. 

Rise in knives and blades being found at London family courts

BBC News has reported that "thousands of knives and sharp objects are being confiscated annually at London family courts". Figures disclosed to the BBC by the Ministry of Justice in response to a Freedom of Information request show that 86 knives with blades longer than three inches (eight centimetres) were seized in 2018-19, having risen from 18 a year earlier. Almost 4,000 shorter blades were found in 2018-19.

B.  Case Law Update

O'Dwyer v O'Dwyer [2019] EWHC 1838 (Fam), 12 July 2019

This was an appeal by a husband in financial proceedings, before Francis J.

The parties had been married for almost 30 years. At first instance (and notably prior to the decision in Waggott v Waggott [2018] EWCA Civ 727 (Fam)), the judge identified the husband's future income from his business as "matrimonial property" that should be shared. He made a spousal maintenance order of £150,000 a year and divided the capital equally.

The husband successfully appealed the maintenance order. Francis J held that, apart from in rare compensation cases, maintenance should be awarded by reference to properly analysed arithmetic that reflected needs, subject to the court's discretion about how generously needs should be interpreted. The judge was wrong to identify the income stream of the husband's business as matrimonial property: future income cannot be shared. Consequently, one spouse may have to live on capital while the other may not.

While a judge may be entitled to be generous in assessing a party's income needs because the other party's earnings are or would be high, they still must refer to the party's actual needs, the income return from the party's capital and whether the party's capital should be amortised. 

Here, the judge had given no reason why the wife should not use her capital to generate income and had also failed to consider amortisation. Francis J held that on the facts it would not be fair for the wife to amortise her capital, while the husband enjoyed a significant income. Accordingly, he adopted Duxbury assumptions to attribute an income return from the remaining capital. Having assessed the wife's needs, he then calculated the correct maintenance order after deduction of the expected income return.

AF v SF [2019] EWHC 1224 (Fam), 1 March 2019

This case came before Moor J at final hearing in financial remedy proceedings.  The court considered the facts of the case in which almost all of the assets were held in family trust (for the husband).

The wife was 49 and the husband was 47.  She had a child from a previous relationship whom the husband had treated as his own.  The couple married in 2004 and the wife was a full-time homemaker and mother.  The parties had two children.  The husband did not work but was a beneficiary of a family trust fund from which he received monthly payments (c.£68,000) and annual distributions (seven-figure sums) that gave him a net income of over £1million a year.  The trust fund was worth around £400million.  None of the income the husband received was saved. 

When the marriage broke down in 2017, the husband moved out.  The wife's child was 18 and about to go to university.  The younger children (14 and 12) were at private boarding school.  The husband stopped paying the fees and also refused to pay court orders for MPS and the wife's legal fees, had written offensive letters to the wife and the court and had refused to attend any hearings. Freezing injunctions had been made against £1.75 million in one of his accounts.  The husband was assessed as lacking the capacity to litigate and was represented by the Official Solicitor. 

Having previously enjoyed a very high standard of living, the wife had been left with assets worth £200,000.  She contended that the husband had a vast capital entitlement under the trust fund and that she should receive £18.6 million comprised of the matrimonial home (an 8-bedroom mansion valued at £2.55million), £500,000 to refurbish it, money for a second home in London and two cars (a Vogue Range Rover and an Audi TT for the au pair), a Duxbury fund of £8.4 million to cover a lifetime income need of some £335,000 a year, capitalised school fees, capitalised child periodical maintenance payments (c.£1.042million) and a reversionary litigation fund (£1million) as the husband's behaviour made the prospect of future litigation likely. 

The husband offered less than £2.9million. 

Mr Justice Moor concluded that the husband could not be regarded as having a capital entitlement to his share of the trust fund.  There were many reasons why the trust fund's trustees might refuse to make a capital distribution to the wife including the trust's dynastic nature, the lack of any previous significant capital distributions, the fact that the fund generated such a high income for its beneficiaries, the fact that the wife was not a beneficiary, the fact that the fund was not a nuptial settlement and that the trustees might then feel obliged to make a capital distribution to the husband.  Instead the value of the fund was considered a very substantial income stream. 

The judge awarded the wife:

• the matrimonial home plus £50,000 to refurbish it,

• £65,000 for two cars (a Range Rover Discovery and a second-hand Fiesta for the au pair);

• £250,000 to repay a sum the husband owed the eldest child; and

• the husband to pay the younger children's school fees (funded from trust income).

The wife's request for a second home was refused as was the reversionary litigation fund and child maintenance would have to be obtained via the Child Maintenance Service (because the court had no jurisdiction to capitalise the husband's obligation or make child periodical payments without his consent and there had not been a "maximum assessment" made against him). 

Noting that a clean break was essential, Moor J calculated that a £1.4million Duxbury lump sum would provide the wife with £175,000 a year for life. 

The Duxbury lump sum was to be paid in part by using the £1.75million of frozen funds, with the balance paid in five annual instalments of £500,000 plus some compensation for the five years the wife would not have her full entitlement.  The judge considered that the husband could easily afford those instalments given that a conservative estimate of his average annual net income was £1.1million. However, to protect both parties, it was ordered that the wife would receive half the net monthly payments that the husband received from the trust for the next five years to put towards the annual instalments, with the balance made up each year from a distribution of the retained trust income. 

In total, W received £7million.

X v Y [2019] EWHC 1713 (Fam), 4 July 2019

In this case, the father sought permission to appeal orders made by HHJ Tolson QC at the conclusion of financial remedy proceedings and children act proceedings.

The couple had been married for 24 years and had two children, one of whom ("B") needed 24-hour care and the family home had been specially adapted for her. B's life expectancy was limited and her physical health was deteriorating.  The wife was a teaching assistant and the husband was a solicitor who worked on a consultancy basis.  There were two properties, some savings and the wife's pension and the pot of assets was modest. 

At the final hearing, the husband had agreed to move out of the family home.  It was ordered that the wife would receive nominal child maintenance, that the husband would receive a 30% share of the wife's pension and that the capital assets would be divided 2:1 in the wife's favour.  The order also provided that the wife could stay in the family home even after it was no longer required by B.  The second property was to be transferred to the husband and he could keep his savings. 

Subsequently, the order was corrected to reflect the wife's income (not £10,000 but £16,700) and that the husband was to be liable for any CGT on the investment property. 

The husband unsuccessfully tried to appeal, mainly on the grounds that the trial judge had taken too broad-a-brush approach to the husband's income.

Mrs Justice Theis found that the judge had made findings about the husband's income based on figures and information that had come from the husband during his oral evidence and the documents he had provided to the court.  As a result, the trial judge had been fully entitled to reach the conclusion they had.   The decision to allow the wife to stay in the family home and not order a sale on B's death had been justified on the evidence and no bias in favour of the wife was found. 

A practical point to note is that, despite three directions orders to the contrary, Theis J had still been presented with a bundle of over 1,000 pages (of which only 100 were referred to in the appeal).  She reminds practitioners in her judgment that disregard to directions serves only to slow down the progress of an appeal. 

H v W [2019] EWHC 1897 (Fam), 17 July 2019

In this case, the court was asked to consider the extent to which an arbitrator can amend an award under section 57 of the Arbitration Act 1996 and how such an amendment can be challenged by the parties.

A final award was made in an arbitration between unrepresented parties, conducted under the IFLA Family Law Arbitration Financial Scheme. The husband applied under s.57 Arbitration Act 1996 for the assessment of spousal maintenance to be corrected on the basis that the grounds of accidental omission (of rental income received by the wife).  The arbitrator amended the award, reducing the maintenance only. The husband submitted another application, under s.57, seeking a correction to the amended award, to achieve a clean break.  The husband argued that the arbitrator's recalculation of the wife's rental income was inadmissible. The arbitrator confirmed that there would be no further amendment and that the issue of spousal maintenance in light of the wife's rental income had been dealt with.  The husband then issued a court application to set aside the spousal maintenance element of the amended award for serious irregularity (s. 68 Arbitration Act 1996).

Deputy High Court judge, Clare Ambrose, noted that s.57 (which gives arbitrators limited powers to correct awards) does not allow arbitrators to give effect to "second thoughts" (Ases Havacilik v Delkor UK Ltd [2012] EWHC 3518 (Comm)), nor to revisit their decision, or correct a gap in reasoning or a mistaken assessment of the facts, law or evidence.  It also does not permit "another bite of the cherry" and should be narrowly construed to avoid costly, time-consuming attempts to re-open decided matters.  It does not allow fresh evidence to be considered to either identify or correct errors. 

However, arbitrators correcting an error under s.57 may amend other parts of the award to reflect the correction. This can be after the 28-day limit and no further submissions are needed. 

Here, whilst there may have been a mistaken assessment of the evidence, or a fault in reasoning, there was no error arising from an accidental omission enabling a correction. There was also no substantial injustice warranting setting aside the award (s.68 Arbitration Act 1996) and the husband's application was dismissed. 

PQ & Anor v RS & Ors [2019] EWHC 1643 (Ch), 4 July 2019

Here we see the trustees of a £80million discretionary settlement, executed in 1968, obtaining permission to treat one of the settlor's descendants as a beneficiary although she was born before her parents married.

The trust's current governing deed required the trust fund to pay the income for life to the settlor's grandchildren (RS and TU) and to any of their children that had reached majority.

One of RS's children had been born a month before her parents married.  The trustees had been uncertain as to whether she qualified as a beneficiary under the trust as the trust appointment contained no provisions for illegitimate children.  Moreover, the laws reforming the position of illegitimate children only have prospective effect and do not apply to settlements that pre-date them. 

It was agreed by all that the child should benefit from the trust.  The trustees proposed an appointment that would put her position as a beneficiary beyond doubt, and asked the High Court to approve it.

In granting the trustees request, Chief Master Marsh had to weigh the arguments for and against the new appointment. In its favour was that it was for the objective benefit of RS to make provision for all of his children; and for TU to make provision for all of his future children, whether or not they were legitimate. It was also for their benefit to ensure that the trust assets were not vested in their children absolutely, but managed responsibly for their long-term benefit.  Moreover, it was what the entire family, including RS and TU, considered to be right. An important consideration was that excluding the child could be the source of family dissension.

Akhmedova v Akhmedov & Ors (Injunctive Relief) [2019] EWHC 1705 (Fam), 3 July 2019

This was an urgent application within matrimonial proceedings for further injunctive relief against, and relating to, the sixth respondent – a Liechtenstein establishment.

To recap, the wife had been awarded £453million (AAZ v BBZ [2016] EWHC 3234 (Fam)).  The husband, a Russian billionaire, had attempted to conceal his wealth.

As part of international enforcement proceedings, it had been uncovered that a Liechtenstein corporate entity was the husband's alter ego.  Freezing orders were made against the entity and it had been joined into the proceedings.  The entity owned the husband's yacht which was estimated to be worth €260million.  The yacht was in Dubai.  The husband was declared to be the yacht's beneficial owner and an order was made piercing the entity's corporate veil and ordering it to transfer the yacht to the wife. 

The Dubai court refused to recognise the English orders.  W appealed knowing that if she lost the appeal there was a risk that the yacht would be removed from Dubai and enforcement was likely to prove impossible thereafter.  In England, the wife applied to extend the freezing order against the entity and to name its de facto directors.  The order the wife sought stated that if the entity allowed the yacht to leave Dubai, the English court would be able to commit the directors to prison. 

The order the wife sought was granted with the judge holding that the court should take whatever steps it could to make its earlier orders effective. 

Gray v Hurley [2019] EWHC 1636 (QB), 25 June 2019

This case concerned a dispute over jurisdiction. 

The parties were in a relationship for just under 6 years and were not married.  The parties enjoyed a worldwide lavish lifestyle paid for by Ms Gray.  They spent more time in London than elsewhere.  Ms s Gray was domiciled in England.

The parties accrued during their relationship a property in Italy and a property in New Zealand.  Other assets included a number of supercars and investments.

On 25 March 2019, Mr Hurley (the Defendant) commenced proceedings against Ms Gray (the Claimant) in New Zealand.  New Zealand law provides relationship property will usually be divided equally.  On 26 March 2019, Ms Gray issued the claim form in England and obtained an order alternative service (following which Mr Hurley was served with the claim form by Whatsapp message). Ms Gray's claim was for a declaration of her absolute entitlement to the relationship assets or that they were held on trust for her, by Mr Hurley, under resulting trust / constructive trust (undue influence) and restitutionary claims.

Mr Hurley sought to challenge the jurisdiction of the court and applied for the setting aside of the order for alternative service and a stay of the English proceedings. Ms Gray applied for permission to serve out of the jurisdiction and an order retrospectively validating the service already effected (if it was found she needed permission to serve the claim form out of the jurisdiction, despite this being contrary to her primary contention) and, also, for an anti-suit injunction and a freezing order.

Mr Justice Lavender was asked to deal only with the jurisdictional issues at the hearing on 11 June 2019, leaving the other applications to be dealt with later.  The factual chronology of the parties' relationship (and the extent to which Mr Hurley spent time in England each year during their relationship, after leaving in 2013) was carefully considered by the court.  Lavender J's judgment provided an overview on establishing forum.

Ms Gray was required to establish that she had a good arguable case under the Judgments Regulation Article 1(2)(a) or that her claim fell within CPR 3.1 Practice Direction 6B.  A good arguable case required an evidential basis showing the claimant has the better argument.  Historically, the law of the husband's domicile was the starting presumption.  Lavender J held that this was contrary to the Human Rights Act nor was it applicable to non-matrimonial relationships.

Arguments that came before the judge regarded Judgment Regulation Article 24(1) Rights in Rem which states that a Member State has jurisdiction where the immovable property is situated.  Ms Gray's claims was said not to be in rem as it was for a declaration from the English court.   A termination of co-ownership in immoveable property fell within Article 24(1) though action requiring the other to execute documents to vest the legal ownership in Ms Gray or relating to Mr Hurley's trust interest was not an action in rem.

The judge considered Judgment Regulation Article 25(1) which provides that regardless of domicile, if parties agreed jurisdiction then that agreed jurisdiction is seised.  A person domiciled in a Member State, whatever their nationality, shall be sued there.  A test of substantial connection and residence must be satisfied. 

Lavender J found that Ms Gray was entitled to serve the claim form on Mr Hurley out of the jurisdiction on the basis that England was his last known domicile.  No other forum appeared to be suitable for determining the whole dispute.

Quan v Bray [2019] EWFC 46, 23 July 2019

To recap, in December 2018, the husband was ordered to pay the wife arrears of maintenance totalling £10,000.  He was also ordered to pay further monthly sums.  The husband openly acknowledged he had not paid any of these amounts which now totalled £38,665. 

The wife issued a general enforcement application in June 2019 which resulted in the husband being ordered to personally attend.  At the last minute, the husband informed the wife and the court that he would attend by telephone as he was in America. The wife faced a conundrum on the enforcement front – none of the options:  attachment of earnings order, third party debt order, charging order, warrant or writ of execution, appointment of a receiver – could be implemented.  The application was therefore stayed, to be restored only with the court's permission.

The wife changed tack and sought a judgment summons.   That application had not been issued and she asked the court to make a number of anticipatory orders on the basis of her giving an undertaking that she would make the application the following day.  Given the quasi-criminal nature of the judgment summons, the court was not prepared to make any of the orders or directions the wife was seeking.

On costs, Mr Justice Holman was critical of the costs run up by the solicitors acting for the wife saying that "incurring costs of over 40 per cent of the actual arrears in issue at the time of issue of this application is the kind of profligate legal expenditure which discredits the practice of family law and is out of all proportion."  The reasonable costs were assessed to be £9,300 (including VAT and counsel's fee) rather than the £18,711 claimed.  Balancing the husband's behaviour on the one hand with the hopeless nature of the application on the other, the judge ordered the husband to pay costs of £4,650 (including VAT) subject to enforcement only being progressed with leave of the court. 

Power v Vidal [2019] EWHC 2101 (Fam), 31 July 2019

Following a seven year marriage, the husband and wife had divorced with decree absolute being granted on 29 January 1997. 

In January 2018, the husband wanted to remarry.  However, he couldn't find his decree absolute and the court couldn't locate a copy either.  The original court file had been totally destroyed in 2013 (notwithstanding HMCTS policy that the contents of divorce files are destroyed after 18 years following the final order and that key pieces of paperwork (including the decree absolute) are kept for a further 82 years), the Office of National Statistics had destroyed paper decree absolutes from 1997 and had not retained a microfiche copy and the Decree Absolute team at the CFC had been unable to find the decree absolute indicating that it had either never been sent to them or it had been lost in the post. 

The court contacted the wife who was by now living in Australia.  HMCTS arranged for her to travel to a storage facility 1000km away where her belongings were stored to retrieve a court certified copy she had retained. 

So, with no office copy existing, there was no longer "an original document filed in this court" which could be examined, copied and certified as being a true copy.  It was therefore necessary for a declaration to be made by the High Court to get to a position as close as possible to that which would have existed had the court file not been destroyed.  Transferring the case to the High Court for the purpose of using the declaratory jurisdiction, Mostyn J declared that the document produced by the wife  was an authentic and accurate copy of the certified copy of the original decree absolute and that the marriage had been dissolved on 29 January 1997.