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Financial Remedy Update, November 2019

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


Sue Brookes, Principal Associate, Mills & Reeve LLP


As usual, this update is provided in two parts:


A. News

More financial support for non-resident parents needed

A new report published by the Social Security Advisory Committee has highlighted steps needed to improve the welfare of separated parents and their children. The report, which looks at the experience of parents and children in the social security and child maintenance systems, focussed particularly on those parents who were not the primary carer but who were still providing a continuing parenting role. 

Although the report was unable to provide many recommendations for change (due to the need for better data and a clear overarching strategy being put in place first), having noted that the social security system assumes there is only one main carer of a child so only one parent can claim child-related benefits (and likewise that the other parent can only receive single adult benefits even if they are sharing the care of children), the report does say that the housing element of Universal Credit should enable parents aged under 35 who are sharing care and paying child maintenance to have their children to stay overnight.  Young non-resident parents are particularly vulnerable within the social security system as housing support often only covers a room for an adult in shared accommodation.  The report also considers emerging evidence that suggests that paying child maintenance can push parents into poverty with separated parents without the main responsibility of childcare having a poverty rate of 30% compared to 21% amongst working age adults.


Brexit and more

It has been a busy month on the political front.  Initially, we had updated guidance for clients seeking a divorce in the event of a no-deal Brexit. Then, following the Supreme Court ending prorogation, we saw both the Domestic Abuse Bill and Divorce, Dissolution and Separation Bill being "resurrected" and a second reading for the Domestic Abuse Bill was heard.  Prorogation hit again and we had the Queen's Speech where it was confirmed that both Bills would be reintroduced into the next parliamentary session.  We had a date for the Divorce Bill's second reading (4 November) and even a first reading of Baroness Butler-Sloss's private members bill (the Divorce (etc) Law Review Bill). But, by the time of writing, MPs have voted for an early general election and so Parliament is due to be dissolved on 6 November. 

So it is goodbye to both Bills unless they both manage to progress through "wash-up" – the period between an election being called and Parliament being dissolved when government tries to fast-track as much unfinished (and usually uncontentious) legislation as possible. Neither can be carried over as they represent unfinished parliamentary business given neither have received Royal Assent.


Civil partnerships on the rise
For the third year, civil partnerships are on the rise according to statistics published by the ONS.  Between 2013 and 2015 there was a large decrease in civil partnerships following the introduction of same-sex marriage but ever since there has been a steady increase in civil partnerships which now amount to just under 1,000 a year. 

Meanwhile in Scotland, a Civil Partnership Bill has been introduced which, if enacted, will enable civil partnerships to be available to opposite-sex couples. 


New President's Guidance on reporting cases
The guidance has been issued to help the court, the parties and the media in circumstances where a reporter attending court may wish to apply to vary reporting restrictions in a case before the Family Court or the Family Division of the High Court. You can read it here.


B. Case Law Update

 
FRB v DCA [20149] EWHC 2816 (Fam)
Mr Justice Cohen (the judge) heard an application by the wife (W) to strike out a claim by the husband (H) for damages in respect of W's deceit. This is the latest round of proceedings previously reported as AB v CD (No.1 and No.2). The judgment was given in public, because it related purely to matters of law and could not identify either the parties or their child, C.

The parties had married in 2003 and separated in 2017, with C having been conceived during the marriage. W issued divorce and financial remedy proceedings. H then issued separate proceedings in the Chancery Division, which have been struck out as having no reasonable grounds for pursuing the relief sought and being an abuse of process.

H had insisted on a DNA test, which proved that C is not biologically his child. H then issued a claim in the tort of deceit in the Queen's Bench Division. Master Cook transferred the application to the Family Division and directed W to serve either a defence or an application to strike out, so she subsequently issued the application.

H argued he has suffered loss and damage due to the difference between the financial provision he will now be ordered to pay in the financial remedy proceedings compared to what he would have been ordered to pay if he had divorced W when C was born, and for of the gifts he has given to W and the sums of money he has paid on her living expenses since she became pregnant with C.

The judge had to consider:

• does the tort of deceit in respect of paternity fraud exist between husband and wife; and

• if so, can it run as a separate cause of action in parallel with financial remedy proceedings or is it an abuse of process and/or otherwise likely to obstruct the just disposal of those proceedings?

The judge considered the case law, which provides clear authority that paternity fraud applies to unmarried couples, although it suggests that there is a distinction between cohabitees and married couples for whom the Matrimonial Causes Act 1973 (MCA) provides a remedy. He also considered a number of articles on the subject. He felt that the tort of paternity fraud could exist between husband and wife because it would be illogical for there to be a difference based on marital status, the Law Reform (Husband and Wife) Act 1962 does not restrict which torts are actionable and, whilst the MCA will help many spouses, there will be cases where the MCA is no longer available and a victim of paternity fraud should still have a remedy available in those cases.

However, the judge did not have to make a concluded finding on whether the tort of paternity fraud could exist between spouses because he concluded that it would be an abuse of process for the two proceedings to be allowed to run in parallel. Allocation of spouses' resources should therefore be dealt with under MCA and not by other common law remedies.

On a practical level, H asking the court to assess his loss and the level of damages therefore payable was based on hypothetical calculations, without any authority supporting his arguments and without any detailed evidence available. Further, following B v IVF Hammersmith Ltd [2019] 2 WLR 109, it is impossible for the court to calculate the value to be attributed to the benefit of a child, so as to set off such value against the financial cost of the child's upbringing and it is morally unacceptable to regard a child as a financial liability.

The court can investigate W's conduct within financial remedy proceedings and determine if it falls within section 25(g) MCA. If it, does, the judge will need to decide what the financial consequences should be but that was for another day.

The exact costs incurred by both parties are unknown but the judge estimated they would be in the region of £3million between them. The ongoing costs of allowing the paternity fraud claim to proceed as separate proceedings would be disproportionate to any gain H might receive from those proceedings.


Maughan v Wilmot [2019] EWHC 2765 (Fam)
The parties' marriage ended in 1999 and proceedings have been ongoing since then as, in Mostyn J's words, the husband (H) is an "exceptionally vexatious litigant".

The judge had made the original civil restraint order (subsequently extended) in April 2014, but it had not been effective to restrain H's vexatious conduct. H had continued "his campaign against the wife (W), his children and his wife's legal representatives unrestrained" including sending dozens of emails to W's solicitor's personal email address and to "bombard the court with emails and spurious applications".

The applications now before the judge were for both W's and a receiver's costs from January 2018 to be summarily assessed; an application from Scottish Equitable allowing it to transfer H's pension to a SIPP held under the authority of the receiver; an order allowing the receiver to disinvest and pay out the sums required to clear the costs orders sought; a general civil restraint order for two more years; an order under the Protection from Harassment Act 1977 restraining H from harassing W, the children, and W's legal team; and an extension of a freezing order.

The judge granted all of the applications before him on the basis that this is one of the worst cases of vexatious litigation misconduct he has ever encountered. He added that this is a case which cries out for an indefinite civil proceedings order pursuant to section 42(1) of the Senior Courts Act 1981 to avoid the wife having to come back to court every two years to renew the general order. An indefinite civil proceedings order can only be made on an application by the Attorney General and the judge therefore directed that a copy of this judgment should be forwarded with a request that the application is made.

W's application for an injunction under the Protection from Harassment Act 1977 had been issued in the Family Division, when it should have been issued in the Queen's Bench Division. However, the court can validate an application issued in the wrong division pursuant to In re Hastings (No 3) [1959] CH 368; Whig v Whig [2007] EWHC 1856 (Fam) and Hashem v Shayiff & Anor [2008] EWHC 2380 (Fam).

H's counsel subsequently applied for "amplification" of the judgment together with an application for permission to appeal. The judge rejected both of these applications on the basis that H was seeking to take points which had not been argued before him or to reargue points which had been rejected.


Akhmedova v Akhmedova [2019] EWHC 2561 (Fam)
In December 2016, Haddon-Cave J had ordered the husband (H) to pay the wife (W) £453,576,152 in relation to her financial remedy application. H has not paid any of the lump sum voluntarily and W has only been able to enforce around £5million.

The English court has already granted orders against various offshore companies and other entities used by H as part of his campaign to evade and frustrate the enforcement of the judgment debt against him. This latest application sought similar relief against two Liechtenstein trustees which appeared to have been used to hide and protect H's assets.

W had specifically applied without notice to join the two trustees to the ongoing proceedings as the 8th and 9th respondents; for freezing injunctions and ancillary orders against them; and for directions in relation to an on notice application for orders under s423 Insolvency Act 1986 and/or s37 Matrimonial Causes Act 1973 to set aside the transfer of US$650million in December 2016 which H had previously owned through Cotor Investment SA as his nominee and held at UBS in Switzerland.

The judgment sets out in some detail the history of the various steps taken by and on behalf of H to put his substantial wealth (US$1.375billion from the sale of his interest in ZAO Northgas in 2012) out of the reach of enforcement.

Following the principles set out by Mostyn J in L v K (Freezing Orders: Principles and Safeguards) [2013] EWHC 1735 (Fam), Knowles J concluded that W had shown she had a good arguable case; solid evidence of unjustified dealing with assets giving rise to there being a real risk of dissipation; and it was just and convenient for a freezing injunction to be granted. The parties were therefore joined to the proceedings and the freezing injunction granted. The trustees could apply to set aside or vary any directions made by the judge in her order.

As the application was without notice, W had a duty of full and frank disclosure and she complied with that duty.

Knowles J also ordered the disclosure of details of all trusts of which the two Liechtenstein trustees were trustees and in which H has an interest and disclosure of what happened to the money which had been held by Cotor.

The judge was also persuaded that it would be appropriate to name the de jure directors of the trustees in the penal notice to make it plain to them that they are personally at risk of committal proceedings in the event of any breach of order. It would be no hurdle to committal proceedings that they are resident outside the jurisdiction Dar Al Arkian Real Estate Development Co and another v Refai and others [2014] EWCA Civ 715.

The judge agreed with W that she should serve H, Cotor and the two trustees through judicial channels in Liechtenstein to avoid any argument that service by any other means would constitute a criminal offence in Liechenstein. There was no need to serve the other respondents to the ongoing proceedings who had not participated in this application and who had in any event been found to be alter egos of H.

It was appropriate to dispense with our usual requirement for personal service of the injunction, for the purpose of enforcement by committal, as service through the judicial authorities would ensure the order is brought to the attention of the respondents. It was also appropriate to email copies of the order to permitted email addresses ensure that it is effective immediately.


Akhmedova v Akhmedova [2019] EWHC 2732 (Fam)
This is the return date of the above application. The respondents did not appear and were not represented at the hearing, despite having been served and given notice as required.

H could be deemed to have received notice of the order and the hearing because the email was successfully delivered to his personal email address without any bounce back.  The papers were also delivered to his son's address in this jurisdiction which had been permitted as a means of alternative service.

Cotor had been served via its registered agent, who had refused to accept delivery at their office, and their fax machine did not respond, but the documents had been successfully emailed to emailed address published on their website.

The relevant named individuals within the trustees had been successfully emailed with a copy of the order and a covering explanatory letter.

No response had been received from any of them.

Formal service had also taken place through the judicial channels, although this had involved an unexpected delay as a result of the need to translate the documents into German; for them to then be verified by another translator who had to appear before a notary in England; they then had to be sent to Liechtenstein and it took time for the Liechtenstein court to grant the order for service and to effect service. The delay was regrettable but no prejudice had been caused to either trustee as they had received the freezing order and been given over five weeks' notice of the return date.

Subsequent to the without notice order being made, W's Liechtenstein's lawyers had received copies of judgments issued by the Constitutional Court in Liechtenstein relating to the trustees and also in relation to ongoing criminal proceedings in Liechtenstein. These documents contained information which supported the inferences which had been made by the judge at the without notice hearing. There has also been further factual developments, which are summarised in the judgment, which did not adversely affect W's case.

In the absence of the respondent's engaging with the proceedings,  the judge therefore continued the freezing orders and directed a further on notice hearing to deal with the documents W had now received relating to H's affairs, some of which were potentially privileged and/or confidential documents.


Ali v Barbosa [2019] EWHC 2776
Lieven J considered an application from Mr Ali (H) to set aside a decree absolute, decree nisi, an order for deemed service of the petition and the resulting certificate of entitlement to a decree, all granted in 2016, on the grounds that the documentation had not been validly served upon him.

H argued that he moved out of the address referred to in the petition in October 2015. The court had sent the petition to that address but the envelope was returned to sender. The wife (W) then instructed a process server who filed an affidavit of service confirming that he had tried to deliver the petition in person and left a calling card at the empty property and that he was subsequently contacted by a male identifying himself as H who arranged a time for the papers to be delivered at the same address. However, H was not at the property as arranged.

W had therefore applied for permission to dispense with service but the court replied highlighting that there were procedural errors with the application and, in any event, if W had established that H lives at the address, the papers should be left there and W instead apply for deemed service. The papers were posted through the door of the address and the W submitted her application for deemed service, following which the court granted the order.

H now argued that there had been no effective service as W had not complied with the specific rules for service in the FPR and, without service, the court had to set the orders aside it was not a matter of discretion. There had been no personal service, W had not applied for substituted service when she could have done so and the rules for the court granting deemed service had not been complied with.

Following M v P [2019] EWFC 14, and considering carefully and comparing cases where decrees have been found to be void with cases where they have been found to be voidable, Lieven J concluded that:

1. the court has little appetite to find that a decree is void;

2. the court has to recognise the apparent status quo flowing from the certainty which normally attaches to the decree;

3. where one party has changed their position, which in practice often means remarriage; efforts should be made to uphold that change of position;

4. there is a trend in divorce law, and in public administrative law, to move away from technical distinctions of void and voidable and to look more rigorously at whether there is any prejudice and change of position; and

5. there plainly remains a category of case where a decree or order will simply be void – the most obvious examples of which are where there is simply no jurisdiction for the court to make the order or where there is fraud.

Not all errors relating to service necessarily render the decree simply void and there is nothing in the rules to say otherwise. To conclude that any failure to serve in strict accordance with the rules renders a decree void would create obvious injustice, particularly where a party has deliberately sought to avoid service for whatever reason.

W had made reasonable enquiries as to H's address before filing her petition by using an appropriate website (192.com). There was evidence that she had tried to find from him whether he had moved. This was not a case where there was any fraud of any failure to take reasonable steps to find his location. The process server was also fully entitled to believe H was living at the address he had attended. There was evidence that H had sought to avoid service. The judge did not make any findings on this point in the absence of any oral evidence, but H was in a precarious position with his immigration status as a result of the breakdown in the marriage and the judge it was surprising that H did not take steps to pick up mail or forward it if he had moved, unless he was seeking to avoid service.

There was therefore no error of law when the court had made the order under FPR rule 6.16.

H's immigration status was prejudiced as a result of the divorce, but he was not prejudiced by any failure to serve. On the contrary, the prejudice to W if the divorce were not valid would be extreme as she had since remarried and had a child with her new husband, all of whom would be affected if the divorce were invalid.

Lieven J therefore concluded that any failure to comply fully with the rules for service renders orders voidable, and not void, and declined to exercise discretion to set them aside.