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Financial Remedy Update, January 2020

Nicola Rowlings of Mills & Reeve LLP considers the important news and case law relating to financial remedies and divorce during January 2020.

Nicola Rowlings, Professional Support Lawyer, Mills & Reeve LLP


As usual, this updated is provided in two parts:

News

First couples enter into opposite-sex civil partnerships

Following on from the case of Steinfeld and Keidan v Secretary of State for International Development (in substitution for the Home Secretary and the Education Secretary) [2018] UKSC 32, the Civil Partnerships, Marriages and Deaths (Registration etc) Act 2019 was made and came into force on 26 May 2019. It provided for the Civil Partnership Act 2004 to be amended by regulation before 31 December 2019, so that opposite sex couples could form civil partnerships in England and Wales. Consequently, on 2 December 2019, the Civil Partnership (Opposite-sex Couples) Regulations 2019 came into force permitting opposite sex couples to form civil partnerships. However, provision has not yet been made for opposite sex couples who are married to be able to convert their marriages to civil partnerships or for those who enter into civil partnerships to convert them to marriages. The government consulted on the future of conversion rights in the summer of 2019. Further regulations on conversion rights may follow in 2020, depending on the outcome of the consultation.


Admin backlog skewing divorce statistics

Using statistical figures produced by the ONS, the Ministry of Justice's Family Court Statistics Quarterly 2018 report indicates that as a result of divorce centres processing a backlog of work last year, divorce petitions increased by 8 per cent in 2018. This is more in line with the number of petitions seen prior to the low number in 2017. The 2018 backlog of work also resulted in a five-week increase to the average time taken from date of petition to decree absolute in 2018 (to 54.3 weeks). As a result, the ONS expect this to translate into a higher number of completed divorces in 2019 compared with 2018.


Research indicates "online advisors give parents biased and potentially damaging advice"
A study carried out by Birmingham City University and Leeds Law School assessed the quality of advice handed out by advisors on online forums and social media platforms.  The research looked at advice handed out on 170 Facebook threads by 30 different McKenzie friends (both voluntary and paid). It showed instances of McKenzie friends advising parents to ignore the advice of lawyers, suggesting courts were institutionally unfair and in some instances advising people to act against the advice of their lawyers while promoting the services of McKenzie friends.


Cases


Akhmedova v Akhmedov [2019] EWHC 3140 (Fam) (Mrs Justice Knowles)
Here, the High Court took the opportunity to expand on the guidance given in UL v BK [2013] EWHC 1735 and looked at the treatment of confidential material belonging to an unrepresented party which comes into the other party's possession.

The wife ("W") made an application  for UL v BK directions concerning "Imerman" documents given to her overseas lawyers by the former director of the husband's ("H") family office ("Mr Henderson"), which may have been obtained illegitimately.  He had been responsible for managing a portfolio worth US$890million and works of art worth US$90million and had received information about H and H's companies including financial statements, information about living costs and expenses and legal advice (mainly from H's English lawyers).  Despite his subsequent dismissal, Mr Henderson had retained copies of emails and documents he had seen during his employment. 

In 2017, Mr Henderson contacted W and offered to help her in her efforts to enforce her financial order.  He passed to her foreign lawyers a USB stick that contained documents outlining H's strategy to evade enforcement.  He also told W's former English lawyers about the documents.  They arranged for the documents to an independent barrister ("IB") who had reviewed them for privileged material but did not apply for UL v BK directions. 

IB concluded that the majority of the documents (244) were privileged but that the fraud or iniquity exception applied because there was a strong case that H had instructed his lawyers to frustrate Ws enforcement proceedings. 

By August 2019, W had made an ex-parte application for a freezing order against some of H's assets.  During that application, W's non-compliance with UK v BL was raised as part of her duty of full and frank disclosure.  W ended up not relying on the 244 documents in support of the freezing order but made an application to seek the court's approval of the steps taken meaning she would be allowed to use the 244 documents in the future. 

Mrs Justice Knowles reviewed the authorities and concluded that where party B is unrepresented, an application to the court for directions must be made as soon as practicable after documents belonging to B come into party A's possession.  She added to the existing guidance in UK v BL by saying:

• if the court orders a review of the documents by an independent lawyer, where appropriate, the order should permit party B to make written representations to the independent lawyer that the material is subject to legal professional privilege;

• the reviewing lawyer should be directed to produce a report to be provided to both parties, and, in the event of any disagreement, to the court;

• if there is disagreement about the outcome of the review, the matter should be referred to the court by party A's solicitors;

• the reviewing lawyer should provide a report explaining the basis of any referral to the court;

• an application may be avoided if the reviewing lawyer exercises caution by excluding party B's potentially privileged documents from disclosure where there is an ambiguity about their nature;

• Standard order 2.3 mirrors the search order in CPR PD 25A. The former doesn't include provisions permitting the supervising solicitor executing a search order to exclude documents from the search, and to retain them in their possession pending further order of the court, if:

o they believe the respondent "may be entitled" to withhold production based on privilege;

o the respondent claims to be entitled to withhold production.

W and her legal team were able to retain the 244 documents and use them as if they had been disclosed by H in the usual way.  This was not a case where a party had unlawfully accessed confidential material; rather H was not engaged in the proceedings save to the extent that he was doing his best to thwart them.  In the circumstances, it was considered disproportionate if W were unable to use the documents simply for the failure to obtain directions at the correct time.  No further independent review was required (because the review undertaken had been thorough and had erred on the side of caution and it was clear they showed that a fraudlent scheme had been set up to defeat W's claims) and W would provide a copy of the 244 documents by email if he requested. 


XW v XH [2019] EWCA Civ 2262
The wife ("W") was appealing a final financial remedy order made by Baker J in December 2017.  He had ordered that W should receive capital resources which, when added to her own assets, would give her approximately £152million being roughly 29% of the parties' combined capital resources of £530million. The bulk of the award comprised a lump sum of £115million, being 25% of the growth in value during the marriage of the husband's ("H") shareholding in a company.

H and W were in their late forties and had been married for seven years.  They had one child.  H worked as CEO of a company which "in a period of 3 to 4 years between 2011 and 2015, the Company … became hugely successful".  H's shares in the company, which he, with others, had established some years before the marriage, realised a very significant sum when the company was sold.  The proceeds received by H from the sale of his shares was approximately £490 million net, out of the combined total of £530 million.

In summary the grounds of appeal were as follows:

• that any principle, that the manner in which the parties managed their financial affairs might impact on the division of the marital wealth, has no application to this case;

• that the husband's "business assets" created during the marriage were marital property which should have been shared equally between the parties;

• that the judge was wrong to find that the company had latent potential;

• that the judge was wrong to find that the husband had made a special contribution;

• that the judge failed to quantify how each of the above factors, in particular latent potential and special contribution, impacted on his award;

• that the judge's decision in respect of restricted stock units (RSUs) and stock options was flawed and he should have awarded the wife a share of these when received by the husband.

It was W's position she should be awarded half of the marital property i.e. a lump sum of £230million plus 50% of the value of H's RSUs and options.  The combined total she sought was £235 million.

The Court of Appeal ruled that the first instance judge had been wrong to decide that the rapid growth of H's business was relevant to the division of wealth between the parties. Further, in deciding that H had made a "special contribution", the judge had failed to consider whether there was such a disparity in the parties' respective contributions to the welfare of the family that it would be inequitable to disregard. 

Applying the trial judge's determination that the ultimate success of the company had been attributable to "a not inconsiderable extent" to its pre-marriage "foundations" and that they remained a "significant" factor, the Court of Appeal considered that it would be fair to both parties to treat 60% of the wealth derived from the shares as matrimonial property and 40% as non-matrimonial.

An equal division of the total marital wealth of £296.7million led to W receiving a lump sum of £145million (in place of the original award of £115million) and the jointly owned property worth £3.7million. The effect of this was that W would have approximately 34.5% (or £182.45 million) of the parties' combined wealth and the husband would have 65.5% (£347.55 million) rather than the original division of 28.75% and 71.25%.


Neil v Neil [2019] EWHC 3330 (Fam) (Mr Justice Moor)
The husband ("H") applied to set aside part of a consent order relating to maintenance payments; the wife ("W") cross-appealed for enforcement of maintenance arrears.  H unusually claimed that original consent order had been changed – fraudulently – without his knowledge or agreement and that W had been complicit in that fraud.  The agreement between them had been reached in mediation; the mediated agreement had then been taken by W to lawyers to turn into a consent order. 

The original mediated agreement provided that there would be a clean break and that the family home would be sold with the net sale proceeds being divided equally except that W would receive the first £1million and that if that was more than 50% of the net equity, a charge would be placed on W's new property in H's favour reflecting the difference.  W subsequently told the lawyers that she and H had further agreed that W should have nominal maintenance and that the charge should be dropped; H later agreed that he would pay W £5,500 a month until the family home was sold. 

A consent order reflecting all of this was sent to H.  H refused to engage but the order was eventually signed by both and returned to the lawyers.  Note that the nominal order was drafted to say that the provision would last until H's 65th birthday, the death of either party, W's remarriage or a further order terminating payments.

During this time, W was also negotiating a mortgage to buy a new house.  She sent to the lender a draft consent order (unsigned) which was altered to say that there were substantive periodical payments of £5,500 a month which would last until H's 65th birthday, the death of either party or a further order terminating payments.  The lender subsequently made W a mortgage offer of £900,000 and asked for a sealed copy of the consent order.  The lawyers had already sent the signed consent order to the court; W told them it would have to be changed. 

The lawyers amended the order in accordance with W's instructions.  W emailed the new draft to H and asked him to sign.  On the same day, she sent the new draft to the lender purportedly signed by both H and W.  Two emails were received by the lender allegedly from H confirming that H agreed to the settlement, including "payment of £5,500 pcm after declaration of Decree Nisei".

H claimed that he never received W's first email, nor did he email the lender that day. His position was that W had access to his email account and that she deleted the first email after sending it, and emailed the lender herself.  The lawyers received the new draft back, purportedly signed by both. 

The family home was sold for £2.35million.  The net proceeds of £1.34million were transferred to W and W transferred to H £100,000. 

W, in other proceedings, was later imprisoned for 8 months relating to producing and relying on forged documents in Chancery proceedings. 

Two handwriting experts were instructed although their evidence ultimately cancelled each other out.  A further expert concluded that it was "plausible" that the disputed emails were sent by W. 

Mr Justice Moor made various findings of fact including that W had perpetrated a fraud on H and that she had sent fraudulent emails on his behalf.  As a result, the relevant paragraph of the consent order was set aside and replaced with a clean break.  He made a declaration that W owed H £248,930 and he ordered W to pay that sum within 28 days.  He was satisfied that he could rely on the memorandum of understanding and that the privilege that attached to it was waived by W when the lawyers had written to H saying that the parties had been able to reach an agreement and attaching a draft consent order.


Haskell v Haskell [2019] EWHC 3434 (Fam) (Mr Justice Mostyn)
On 4 March 2019, the husband ("H") was ordered to pay maintenance pending suit ("MPS") of approximately £50,000 per month, of which £20,000 was for the wife's ("W") legal costs, and the balance was to support W and the children. H said that he would apply to vary the order, as arrears of over £200,000 had already accrued. He said that he had been in receipt of significant sums from various global investments, including loan repayments of £85,000 a month, which had been paid to him by two companies of which he was the sole shareholder. However, those payments had come to an end.

Mr Justice Mostyn was satisfied that on the evidence H was encountering genuine cashflow problems, although he was not satisfied about the scale or duration of those problems. He noted that variation of an MPS order requires a material change of circumstances of a serious nature, that is proven by compelling evidentiary disclosure (Morris v Morris [2017] 1 WLR 573 and G v G [2003] 2 FLR 72). In this case, there was insufficient evidence to permanently discharge the MPS liability. However, a lesser change in circumstances that required less robust evidence in support would be enought to suspend an MPS liability. A suspension defers, rather than eliminates, the liability.


Derhalli v Derhalli [2019] EWHC 3286 (Ch) (Mr Justice Fancourt)
The trial judge had erred in finding that, following a consent order that the matrimonial home be sold and the proceeds split, the wife ("W") was a gratuitous licensee of the home and liable to pay rent to the husband ("H") until she vacated it. The surrounding circumstances and the other terms of the order strongly indicated that the parties' agreement had the effect that W was entitled to stay in occupation until the house was sold.