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Home > Judgments > 2019 archive

Neil v Neil [2019] EWHC 3330 (Fam)

Judgment by Mr Justice Moor on an application to set aside part of a final order made in 2015 on grounds of fraud, and for determination and payment of the amount of the proceeds of sale of the former matrimonial home due to the Applicant Husband by the Respondent Wife.

Facts

The Applicant Husband ('H') and the Respondent Wife ('W') started cohabiting in approximately 1992 and married in March 2007. There was one child of the marriage, now aged 22. Both parties had adult children from previous relationships. The former matrimonial home ('FMH') was a substantial property thought to be worth £2.8 million (£1.77 million equity) at the time of separation.

In 2002, H, W and others set up a company providing security services ('TSS'). They worked full time for the business, H as the managing director, and W as the main administrator.

The parties separated on 14.01.14. H moved out of the FMH. Shortly thereafter, the parties attended three mediation sessions with a qualified mediator, resulting in a Memorandum of Understanding ('MOU') dated 22.07.14 marked "without prejudice".

The MOU included the following provisions [10]:

i. The FMH would be sold and the net proceeds of sale divided equally, but

ii. W would receive the first £1 million from the sale to enable her to purchase a house for herself and the parties' child;

iii. If this £1 million amounted to more than 50% of the equity, the difference would be reflected as a charge on her new property in H's favour;

iv. The charge would be realised only if W sold her new property or remarried;

v. The parties wished to have a clean break as to income. The MOU stated that spousal maintenance for W "was not considered necessary due to their professional careers, substantial and equal incomes and assets".

vi. The parties wished for all future claims between them to be dismissed.

In or around December 2014, W instructed solicitors ('XYZ') and told them that she had reached a verbal agreement with H to the effect that:

i. W would not receive spousal maintenance but needed to keep the option open should her circumstances change; and

ii. W would receive the first £1 million of the proceeds of sale of the FMH and H would get the balance.

H did not instruct lawyers. He later agreed with W that he would pay £5,500 p.m. towards the FMH expenses until its sale.

XYZ sent a draft consent order to W on 09.03.15 said to reflect W's instructions in respect of the agreement, but including many requests to W for further clarification. It. The draft included the following:

i. A provision stating £1 million of the FMH proceeds of sale would be paid to W with the balance to H;

ii. A recital that W would undertake to place a charge on her new property in H's favour if £1 million exceeded her half share;

iii. An order for nominal periodical payments until H's 65th birthday, the death of either party, W's remarriage or a further order terminating payments.

W asked XYZ to remove her obligation to secure a charge against her next property in H's favour, saying that this had been agreed between the parties. XYZ sent a revised draft to H including the amendment and an undertaking that H would pay £5,500 p.m. into the parties' joint bank account until the FMH was sold ('the Original Draft Order'). The Original Draft Order was accompanied by a letter stating that the draft reflected the terms of the agreement reached through mediation.

H originally refused to engage and told W that he did not want to hear from her solicitors any more. However, the Original Draft Order was ultimately signed by both parties and returned to XYZ on 18.05.15.

While these negotiations were on-going, W had been negotiating a mortgage to buy a new house. On 19.05.15, W sent an email to the lender asking for confirmation that they had all they needed for her to purchase a property of £1.65 million. A day later W sent the lender a draft order (unsigned by either party) including a clause for substantive periodical payments of £66,000 per annum (£5,500 per month) from 01.04.15 until the same trigger events contained in the Original Draft Order, except for W's remarriage ('the Second Draft Order').

On 01.06.15, the lender made a mortgage offer to W of £900,000 and required a sealed copy of the court order. On 04.06.15, XYZ sent the signed version of the Original Draft Order to the court for the order to be made and sealed. A few days later, W told XYZ that the agreement had to be changed, saying that H's payments of £5,500 p.m. would continue after "Decree Nisei [sic]" and until W remarry.

On 15.06.15, XYZ amended the Original Draft Order as follows:

i. Removing the clause that referred to the net proceeds of sale of the FMH being divided equally in a recital at paragraph 18 of the Original Draft Order; and

ii. Adding a provision for periodical payments of £5,500 p. m. at Paragraph 26;

W emailed the final draft to H, asking for his signature. She sent the final draft to the lender, purported to be signed by both parties, on the same day. Two emails were also sent from H's mail box to the lender confirming that H agreed to the settlement, including "payment of £5,500 pcm after declaration of Decree Nisei [sic]".

H claimed that he never received her W's first email, nor did he email the lender that day. His case was that W had access to his email account and that she deleted the first email after sending it, and emailed the lender herself. Later than day, XYZ lodged the (unsigned) final draft consent order at court. On 30.06.15, an employee of TSS sent to XYZ the final draft consent order purported to be signed by both parties. The draft was approved by the court on 02.07.15 but dated 08.07.15 (the 'Final Order').

The FMH was sold on 30.11.15 for £2,350,000. The net proceeds of sale came to £1,348,930 and were transferred to an account in W's name in their entirety. W transferred £100,000 to H only. She bought a new property but refused to put a charge on it in H's favour.

In 2016, TSS encountered serious difficulties. There were proceedings in the Chancery Division in which allegations of misappropriation of funds were made against W. Those proceedings ultimately resulted in W being found in contempt of court, the court having made findings that W had produced and relied on a forged documents in court. W later admitted having done so. She was sentenced to 8-months imprisonment and ordered to pay indemnity costs of £320,000. This sum was still outstanding at the time of this hearing.

TSS went into administration in January 2017. W sold her new property on 02.03.17 for £2,075,00 and received £1,178,000. W filed for bankruptcy on 5.02.18 and was made bankrupt on 06.03.18. The most up-to-date report of the trustees in bankruptcy asserted that W had unsecured creditors of £551,705.

At the time of the hearing before Mr. Justice Moor, H was 53 and was the chairman of a company supplying security and other staff to West End clubs and restaurants, while W was 52 and in receipt of employment support and housing benefits.

The applications before the court

H applied for paragraph 26 of the Final Order to be set aside on the ground that it had been obtained by fraud. He claimed that he had never agreed to the terms of the Original Draft Order or of the Final Order, that neither reflected the terms of the MOU, which was all he agreed to.
 
H also sought determination of the amount for which W was liable to him in relation to his share of the proceeds of sale of the FMH, and an order for payment of the same.

W made two cross-applications. She sought enforcement of maintenance arrears due under paragraph 26, which she asserted had not been obtained by fraud. She accepted that H did pay £5,500 p.m. towards the costs of the FMH until it was sold, but not thereafter. W also sought an upward variation of the periodical payments order contained in the Final Order.

Judgment

Mr. Justice Moor first considered the expert evidence.

Expert evidence

A Single Joint Expert ('SJE') was appointed to investigate the emails sent to the lender on 15.06.15. His report stated that the two emails purported to be sent by H were found in the sent folder of W's email account. Mr. Justice Moor stated that it was therefore "plausible" that the disputed emails were went by W [45]. He accepted the SJE's evidence that the emails could not have been moved to W's sent folder by someone acting for H. [61]

Two handwriting experts were instructed to investigate whether H's purported signatures of the Original Draft Order and the final draft order were genuine. H's expert concluded that it was more likely than not that these were not H's signatures. W's expert came to the opposite conclusion. Mr. Justice Moor therefore concluded that the handwriting evidence was entirely neutral and decided to ignore it completely [46-47].

The Law

Mr. Justice Moor then turned to the applicable legal principles:

i. In deciding what orders to make pursuant to sections 23 and 24 of the Matrimonial Causes Act 1973 ('MCA 1973'), the court must have regard to all the circumstances, in particular the factors listed in section 25(2) MCA 1973. [48]

ii. The burden of proof in relation to a disputed allegation is on the party who seeks to establish it. The standard of proof is the civil standard. The seriousness of an allegation makes no difference to the standard of proof. [49]

iii. The inherent probabilities are simply something to be taken into account, where relevant, in deciding where the truth lies. (Re B (Children) (FC) [2008] UKHL 35). [49]

iv. If the evidence in respect of a particular finding sought by a party is equivocal, the court cannot make a finding on the balance of the probabilities, as the party seeking the finding has not discharged either the burden or standard of proof (Re B (Threshold Criteria: Fabricated Illness) [2002] EWHC 20). [49]

v. The court in this case had to decide first whether either party had lied to this court. If so, the court had to ask itself why the person concerned lied, and in particular whether there was an "innocent" explanation for those lies. If not, then the court could take the lies into account in its assessment of where the overall truth lies and in relation to its findings on the facts in issue in the case. [50-51]

vi. The findings of the court in the Chancery litigation warranted a bad character direction in relation to W. Although the court must not find that W's case is untrue just because of those findings, it had to consider the issue of propensity. [52]

vii. It is for the court to weight the expert evidence alongside the lay and other observational evidence. There is no presumption of belief in an expert. It is, however, necessary for a judge to give reasons for disagreeing with an expert's conclusions, and further, a judge cannot substitute his own views for the views of the expert without some evidence to support what he concludes. [53]

viii. If fraud is established, the order will be set aside, save in very limited circumstances as described by Lady Hale at §33 of Sharland v Sharland [2015] UKSC 60 (i.e. where the fraud would not have influenced a reasonable person to agree to the consent order, had it known then what it knows now, would the court have made a significantly different order). [55]

ix. The decision of S v S (Arbitral Award) [2014] EWHC 7, although dealing with arbitration agreements rather than agreement reached via mediation, was strong authority for the concept of converting agreements into orders swiftly if there is no good reason not to do so. [57]

x. The decision of Kingdon v. Kingdon [2010] EWCA Civ 1251 recognised that there will be cases where, on an application to set-aside for non-disclosure, the proper course is to conduct the entire financial remedy exercise again, but this will not always be the case, for example where the non-disclosure relates to one discrete element of the case. [58]

Oral evidence

Mr. Justice Moore made the following findings of fact on the oral evidence[77]:

a) Without H's knowledge, W got XYZ to amend the MOU in the Original Draft Order, to delete the charge back and include nominal maintenance of £1 per annum.

b) It was almost impossible to see how XYZ could say to H that the Original Draft Order reflected the terms of the MOU.

c) W could not rely on her own deceit to back away from that acknowledgment by an attempt to say she was only agreeing if there was no charge back and nominal maintenance.

d) Very foolishly, H refused to engage and sent an aggressive email to W saying he did not want to hear from her solicitors any more. Had he had instructed lawyers, W's deceit would have been exposed.

e) H signed the Original Consent Order thinking it was in accordance with the MOU.

f) Thereafter, W realised she could not get the loan she wanted from the lender without convincing them that she would also be getting periodical payments of £5,500 per month. She knew, at all times, that she would not be receiving any such sum. She sent the lender a document that she accepted she had falsified by changing £1 per annum to £66,000 per annum. As that was not enough to satisfy them, she later sent them another document to which she added a signature of the Husband from an earlier document.

g) W then sent fraudulent emails purporting to be from H to the lender when they were actually sent by her. H knew nothing about this at all.

h) As that was not sufficient either, she had to approach XYZ to get the consent order changed.

i) W sent back the final consent order with a signature on it from H. H accepts he signed something but denies that he signed the consent order. He was not aware of what he was signing. He did not know he was committing himself to lifelong maintenance of £5,500 per month. He thought he was guaranteeing a loan/mortgage. If he did sign, he did not read it carefully.

j) Following the sale of the FMH, H did not pay any maintenance as he had no idea he was supposed to. He would never have agreed to do so, in any event. It was clear he thought there should be a clean break. He also thought he should have a charge on her new property.

k) H has been very naïve. W has been thoroughly dishonest. It was conduct of the most serious nature as provided for by section 25(2)(g) MCA 1973.

Outcome

Mr. Justice Moor set aside paragraph 26 of the Final Order. He made a declaration that W owed H £248,930 under paragraph 25 of the Final Order as the balance of the proceeds of sale amounted to £348,930, of which he had received only £100,000. He ordered W to pay that sum to W within 28 days. [79]

Relying on the case of Kingdon, Mr. Justice Moor decided to finally dispose of the case rather than direct a re-hearing. [82]

He was satisfied that he could rely on the MOU and that the privilege that attached to it was waived by W when XYZ wrote to H saying that the parties had been able to reach an agreement and attaching a draft consent order. [83]

Taking W's case on H's financial circumstances at its highest, Mr. Justice Moor came to the clear conclusion that there was no realistic prospect that W would ever get a substantive maintenance order against H. He was satisfied that there should be a clean break now. Paragraph 26 of the Final Order was therefore replaced with a clean break order in life and death. W's cross-applications were dismissed. She was ordered to pay H's costs on the indemnity basis. [86-90]

Roxane Reiser, barrister, 1 Hare Court

Read the full judgment of Neil v Neil [2019] EWHC 3330 (Fam) on BAILII