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Financial Remedy Update, August 2020

Mills & Reeve LLP considers the important news and case law relating to financial remedies and divorce during August 2020.

   

Philip Way Partner, Louise Lister Trainee Solicitor, Marc Saunderson Partner, Nicola Rowlings Professional Support Lawyer all of Mills & Reeve LLP


As usual this update is provided in two parts

Cases

R (on the application of Kate Harrison and others) v Secretary of State for Justice and others [2020] WLR (D) 458

The High Court considered an application brought by six couples seeking the legal recognition of humanist marriages in England and Wales.

The Claimants sought declaratory relief; specifically, a declaration that the legislation providing for the legal recognition of marriage in England violates their rights under the HRA, and a declaration of incompatibility pursuant to section 4 of the HRA. 

The Government disputed the Claimants' claim that there had been any violation of their rights, arguing that, even if there is any difference in treatment between the Claimants and their religious comparators, the measures under challenge are objectively and reasonably justified, not least given ongoing consideration of reform in this area of social policy. 

The Government also argued that the couples had no right to humanist marriages, on the basis that humanist marriages are not sufficiently connected to humanism to merit legal protection.  Further, the Government submitted that English law already provides for humanist marriages by way of civil marriage.  Mrs Justice Eady DBE rejected these arguments, saying that there is an intimate link between couples' beliefs and their choice of a humanist ceremony.

Mrs Justice Eady DBE ruled that the failure to provide legally recognised humanist marriages means that 'the present law gives rise to… discrimination'. She also ruled that, in light of that, the Secretary of State for Justice 'cannot… simply sit on his hands' and do nothing.  However, she went on to say, given that the Government is currently giving the matter consideration in the form of a review into marriage law by the Law Commission, the Government's refusal to act immediately can be justified 'at this time' and concluded, 'Although I may deprecate the delay that has occurred since 2015, I cannot ignore the fact that there is currently an on-going review of the law of marriage in this country.' As a consequence, she declined to make a formal declaration that the Government is acting unlawfully at this time.

The judge went on to say that attention must now turn to the Government's promised review of marriage law as the way that this discrimination must be addressed. The Government said that a consultation would be published in early September by the Law Commission.


OG v AG [2020] EWFC 52

OG ("H", aged 51) and AG ("W", aged 53) made cross-applications for financial remedies after a 25 year marriage, having separated in 2017.
H and W had both worked hard in a ducting business (X Ltd – "X") which H had established in 1989 and which W had been running single-handedly since September 2019.

The assets were divided into three categories:

1. Non-business, non-pension assets
These came to a total of £3.68m.

2. X
X was valued by an SJE, who gave a figure in the range of £13.78m to £13.95m (with a median of £13.865m). Of this figure, £9.992m represented surplus assets (held as cash and quoted investments). The trading element of X was valued at £3.945m.

Mostyn J agreed with W that a discount should be applied to reflect the effects of Covid-19 and Brexit, but applied a 10% discount only to the trading element of the valuation, since there was no logic in applying such a discount to the cash and investments held by X.

He also agreed with W that a discount should be applied to reflect the effects of H setting up a competitor company (AB LLP "AB"), but again only applied this to the trading element of X. The appropriate discount was held to be 30%.

These discounts reduced the net value of the parties' interests in X to £10.7m.

3. Pension assets
The parties' pension assets were worth £1.98m.

In total, the parties' assets were worth £16.37m.

Conduct
Mostyn J found that H's disclosure in relation to Dubai properties and other matters had been made in a piecemeal fashion. 

AB had been loaned significant sums of money by a company incorporated in Dubai, TT Ltd ("TT"), which H asserted was a vehicle to obtain residency in Dubai. H had advanced and/or loaned monies to TT In February 2019 when AB was incorporated.  Mostyn J considered that H's conduct, inter alia, in concealing a number of the Dubai transactions and loans made to TT was 'not only dishonest but futile and frankly inexplicable'.

However, W was 'not above criticism herself'. He found her negotiating stance to have been unreasonable and she had herself been guilty of non-disclosure.

Mostyn J categorised conduct as arising in four distinct scenarios:

1. Gross and obvious personal misconduct meted out by one party against the other (normally, but not necessarily, during the marriage).

2. 'Add-back' cases, where one party has wantonly and recklessly dissipated assets which would otherwise have formed part of the divisible matrimonial property.

3. Litigation misconduct.

4. The drawing of inferences as to the existence of assets from a party's conduct in failing to give full and frank disclosure.

Regarding H's conduct, Mostyn J firstly decided that the sums loaned by H to TT would all be added back to the matrimonial pot at full value.  However, he was not satisfied that H's 'abysmal, and let there be no doubt, dishonest presentation', coupled with the remaining minor deficiencies, should lead him to infer that H had 'squirrelled away' substantial sums stolen from X.

Although in times gone by the courts in ancillary relief cases formed 'first and foremost a moral judgment', Mostyn J pointed out that '[t]he financial remedy court is no longer a court of morals'. Conduct should be taken into account 'not only where it is inequitable to disregard but only where its impact is financially measurable', and it is 'unprincipled for the court to stick a finger in the air and arbitrarily to fine a party for what it regards as immoral conduct'.

Mostyn J therefore rejected W's submission that in addition to the competitor discount (which would fall on H alone) and a penalty in costs, there should be an additional substantial departure from equality 'to reflect the court's indignation at the way the husband has behaved in the course of the litigation'.

Costs
Mostyn J emphasised the revised para 4.4 of FPR PD28A, which requires parties to negotiate openly in a reasonable way and which is 'extremely important'. W's attempt to take advantage of H's delinquency to justify such an unequal division of the assets as that proposed by her was not a reasonable way of conducting litigation, and so W would herself suffer a penalty in costs for adopting such an unreasonable approach. Mostyn J declared: 'It is important that I enunciate this principle loud and clear: if, once the financial landscape is clear, you do not openly negotiate reasonably, then you will likely suffer a penalty in costs. This applies whether the case is big or small, or whether it is being decided by reference to needs or sharing'.

Whilst a costs order was made in W's favour, the sum was adjusted to reflect her own approach.  For example, £50,000 was deducted to reflect her unreasonable and untenable open negotiation stance.  Mostyn J hoped that 'this decision will serve as a clear warning to all future litigants: if you do not negotiate reasonably you will be penalised in costs'.  H had to pay W £278,020, which represented 45% of W's total costs.

Overall, W received £9.055m, and H received £7.316m (44.7% of the total assets), on a clean break basis. The departure from equality was in the sum of £869,741, which was 'the price that the husband has to pay for his conduct in setting up a competitive business and conducting the litigation so abysmally'.  Mostyn J emphasised that he hoped 'it will serve as a lesson to any future litigant who is tempted to behave in the same way'.


LP v AE [2020] EWHC 1668 (Fam)

The unmarried parents ("M" and "F") with a 6-year-old daughter were involved in private law children's proceedings for child arrangements orders to live with or spend time with F.

In June 2019, HHJ Cox ordered F to contribute to M's costs of representation through a fact-finding hearing, conditional upon M returning to the jurisdiction with the child. M applied for £117,000, based on instructing both solicitors and counsel. Instead, HHJ Cox ordered payment of £35,000, based on a quotation provided to F by a barristers' chambers on a direct access basis.  The £35,000 was paid on 3 July 2019, but M's legal fees exceeded the amount, despite her representing herself after the first day of the fact-finding.

On 16 September 2019, M's newly instructed solicitors asked F's solicitors whether F would cover M's fees from August 2019.  On 20 September 2019, F's solicitors replied that he would not. The High Court noted it was regrettable that the M did not make an application for a LSPO promptly then.  The application was made on 20 November 2019 and sought £99,000 to take M's legal team through a hearing fixed for 16 December 2019.  F offered £12,000 in response.

The hearing 16 December 2019 before HHJ Tolson QC combined child arrangements and the LSPO issue.  Cohen J observed that this "should be avoided".  At the 16 December 2019 hearing, HHJ Tolson QC expressed that:

(i) M's fees should have been £3,000, not £99,000;

(ii) M's solicitors did too much work;

(iii) The children's guardian's fees were a few thousand pounds, as a good indication;

(iv) F's fees were irrelevant (they were also unknown until the appeal and turned out to be some £560,000 including the related criminal case);

(v) M must still have some of the £35,000 from July left over.

Cohen J found that HHJ Tolson QC's "approach and reasoning to the issue was one which involved him taking into account matters which he should not have taken into account and ignoring matters that were plainly relevant".

Cohen J allowed M £40,000 plus VAT, through to the end of the proceedings, with £22,500 for solicitors and £17,500 to counsel, and apportioning approximately one-third to a hearing listed 31 July 2020 and two-thirds to the final hearing 14-15 September 2020.

Cohen J cited Rubin v Rubin [2014] 2 FLR 1018 and BC v DE [2017] 1 FLR 1521, Mr Justice Cohen and noted that:

(a) the costs were unpaid costs, not historic costs;

(b) an award would have been made if M's LSPO application had been issued promptly in September;

(c) an award must include both solicitor and counsel's fees (unless counsel had agreed to "happily act on a direct access basis on his own");

(d) 20 November was far too late for M to make the LSPO application;

(e) the claim could not fail simply because it was not heard before 16 December; and

(f) M's solicitors did not continue working anticipating being totally unremunerated.

Cohen J also concluded F would not pay for M's fees between August and October 2019, in part because those fees were incurred by M changing solicitors and in part because of the delay in making the LSPO application.

A useful decision for the practitioner when advising as to the merits and timing of an application for a LSPO.


AG v AD [2020] EWHC 1847 (Fam)

The couple began cohabiting in 2009 and married in 2010. In March 2017, the wife ("AG") filed a divorce petition in England which stated that she and her husband ("AD") had been separated for the past two years. In December 2017, AD petitioned for divorce in Russia, citing a separation date in 2014.  A Russian decree of divorce was granted.  AG withdrew her English divorce petition and sought financial orders under Part III Matrimonial and Family Proceedings Act 1984.

AG's Part III statement asserted that the marriage had ended in 2017. The issue for determination was when the marriage had ended: in 2014 or 2017. AD sought an order that AG produce the files of her previous legal advisors, AG having waived privilege in her statement, when she answered a questionnaire and in a second statement.

AG instructed Legal Case Management Ltd who had retained Sterling Lawyers Ltd to issue the petition, which AG alleged contained several errors. AG maintained that she had not informed her advisors that she had separated two years prior to 2017 and that she signed the petition in English without it being translated into Russian (her first language).

Cohen J observed that, in asserting that her instructions had been misconstrued, AG was challenging what her advisers had quoted her instructions to be, which went to the substance of her case. It would be unfair if AD could not challenge this by reference to contemporaneous notes or other communications. AG had opened up the question of what she had told her advisers, put it in issue and was relying on the same.

The decision highlights that only specific documents will be ordered to be disclosed (Brenan v Sunderland [2009] ICR 479). AD's request for all the files went too far. Material in the files could relate to financial affairs or the child of the family, which should not be subject to a waiver of privilege. Cohen J ordered disclosure of:

• material in which AG's instructions were given or noted about when the parties separated, together with copies of all such communications and notes to identify those to whom AG gave her instructions and the language in which those instructions were given; and

• documents identifying when the draft petition was sent to AG or any communication with her about its contents.


S v C [2020] EWHC 2127 (Fam)

The parties were married for five years and divorced in 2016. The wife ("S") applied for a financial remedy order for the parties' daughter who was by now six years old. As all matrimonial claims between the parties' had been settled, the issue the court faced was to what extent it should exercise its discretion under s.23 Matrimonial Causes Act 1973 to release to the parties a frozen fund (worth around £3.74 million). The origin of this fund was the settlement of a negligence claim the parties' had launched on behalf of their daughter. The consent order that was approved by the court in May 2016 had contained a specific recital that the parties would continue to have joint conduct of the personal injury claim and that:

• any settlement or award made for the benefit of their child could only be invested and applied as expressly agreed between the parties; and

• once such a settlement or award had been made, the parties would review the payments they had made for the benefit of their child and consider whether such payment should be met from the settlement or award going forward.

S brought her application under three separate limbs:

• an application for a lump sum for their child under s.23 (1)(f),

• an application for child maintenance under s.23 (1)(d) due to their child's ongoing disabilities;and

• an application for secured child maintenance under s.23 (1)(e).

The husband ("C") sought the dismissal of S's application for secured funding and in the absence of the parties agreeing a way forward that the court should make no order.

The judge concluded that a formal mechanism should be put in place to ensure that the child benefited from a significant element of those funds and made an order which comprised the following:

• child maintenance of £2,000 a month;

• £150,000 of C's share that he received of the settlement monies to be set aside as a secured maintenance fund with C being entitled to draw down £24,000 a year;

• £900,000 to be preserved for C to purchase a property which would be held in his sole name and subject to a charge in the child's favour for the sum of £900,000 with S being permitted to use the funds from her share of the settlement monies to redeem her existing mortgage with the sum of £900,000 being subject to the same obligations as that of C; and

• both parties being required to put in place an acceptable form of life assurance in an agreed sum of at least £1million for their child's benefit.


Webb v Webb [2020] UKPC 22

The parties married in 2005 in New Zealand and had one child born in 2006. The Appellant Husband ("H") was subject to an investigation by the New Zealand Inland Revenue Department ("IRD") in 2011, which revealed significant tax debts. Most of the family assets held by family trusts (that were controlled by H) were located in the Cook Islands. The parties moved to the Cook Islands in 2013. The parties separated in 2016 and H returned to New Zealand.

The Respondent Wife ("W") brought an application under the Matrimonial Property Act 1991-92 in the High Court of the Cook Islands for division of matrimonial property. W asserted that the assets held in the family trusts were matrimonial property. In addition, W challenged the validity of the family trusts. H asserted that the family trusts were valid and that if any of the assets were matrimonial property, his deductible debts exceeded their value. 

The High Court of the Cook Islands dismissed W's claim, finding the family trusts to be valid and that there was a real likelihood that H had to pay the IRD the debts he owed, being personal debts. In any event, if the trusts had been invalid, H's personal debts would have exhausted any matrimonial property.

W appealed to the Court of Appeal of the Cook Islands. The court held that the family trusts were invalid and that H's tax debt should not be considered as it was unlikely to be enforceable in the Cook Islands. H appealed to the Privy Council. 

The Judicial Committee of the Privy Council advised that the appeal should be dismissed. Whether the family assets formedpart of matrimonial property was not as straightforward as to H's debts amounting to personal debts. Instead, it was whether the debt was enforceable in the Cook Islands. The family trusts were held invalid as H had, under each of the trust deeds, the rights in the trust assets which were indistinguishable from ownership. H had the power to secure the benefit of all of the trust property to himself at any time, regardless of any interests other beneficiaries had. It followed therefore that the trusts failed to record an effective alienation by H of any of the trust property.

In his dissenting judgment, Lord Wilson concluded that the tax debt was enforceable as there was no material to support the suggestion that the Cook Islands would decline to enforce the debt to the New Zealand IRD. Lord Wilson also turned to the construction of the word "debts" in the legislation and the importance of the wording "debts" having the same meaning in both subsections and not being referable to specified assets. As a result, Lord Wilson would have allowed H's appeal.


News

Remote hearings

HMCTS has produced online training to assist practitioners using the Cloud Video Platform (CVP) in the Civil and Family Courts.  The training assists practitioners with preparing for, joining and participating in a remote hearing using the CVP.


Applications for online divorce and FR orders

? HMCTS has published guidance to assist practitioners using the online platform MyHMCTS for divorce proceedings. The guidance sets out the online steps to follow when decree nisi has been refused and clarification or an amended petition is required. 

? On 13 July 2020, HMCTS published updated guidance on completing an Acknowledgement of Service online in divorce proceedings. Represented and unrepresented respondents, and co-respondents who are unable to respond online, can complete the AoS offline following receipt of an AoS invitation letter. A paper (offline) AoS can be requested and, once completed and returned to HMCTS, the information from the paper AoS is transferred onto the online system by a caseworker.

? HMCTS has updated its onboarding guidance for FR consent orders.  From 24 August 2020, new pilot Practice Direction (PD) 36T came into force and temporarily modified PD 41B. PD 36T makes it mandatory to use the online application system when applying for financial remedy consent orders (except variation orders) in divorce proceedings, where the applicant is legally represented. PD 36T expires on 31 May 2021. 


COVID-19 guidance

On 21 August 2020, HMCTS announced the opening of a further two "Nightingale Courts" from 24 August 2020 at the Ministry of Justice in London and the former Fleetwood Magistrates' Court building.  This means that eight of the ten planned Nightingale Courts are now open.

On 23 July 2020, HMCTS circulated a letter to stakeholders from Susan Acland-Hood (Chief Executive, HMCTS), announcing that, from 27 July 2020, HMCTS will be asking all court and tribunal users in England to wear a face covering in the public areas of its court and tribunal buildings.

However, face coverings may be removed (and judges or magistrates may ask for them to be removed) when people are speaking or presenting evidence in the court room.  Additionally, two metres' social distancing should be "strictly observed" for anyone speaking without a face covering.

Practitioners should note further that:

• Individuals may be asked to temporarily remove their face covering for identification purposes.

• Court and tribunal users should bring their own face coverings wherever possible, but can ask for one from a member of staff if they do not have one.

• Face coverings are not required if users "have a practical reason" not to wear one. This includes where users have a disability or health issue that makes wearing a face covering difficult, where wearing a face covering will cause the wearer severe distress, where a deaf person needs to read the individual's lips (although speech-to-text apps should also be considered), and where users are eating, drinking or taking medicine.  For users who have a practical reason not to wear a face covering, they may wish to wear a lanyard with an exemption card or carry an exemption card with them.

On 1 July 2020, the Lord Chancellor and Minister for Justice, the Judiciary and HMCTS each published an update on recovery plans for courts and tribunals in response to the COVID-19 outbreak.  The recovery plans followed an announcement by the Prime Minister the previous day, that HMCTS will receive £142 million of additional capital funding this year, £105 million of which is allocated to improving the court and tribunal estate.


The House of Commons Justice Committee calls for the Ministry of Justice to take action over concerns that legal services providers may collapse

COVID-19 has led to a downturn in court cases and has caused delays across the court timetables due to the safety and social distancing measures. This has resulted in reduced incomes for legal services providers, with young solicitors and barristers being hit the hardest along with Black, Asian and Minority Ethnic lawyers. The committee's report highlights these concerns and the potential outcome that some barristers, solicitors and law centres may collapse. This will in turn lead a shortage of legal advice and representation.


Family Procedure Rule Committee meetings

The approved minutes of the Family Procedure Rule Committee meetings on 4 May 2020 and 8 June 2020 have been published.
Points of interest include:

• Form D81: changes to the form are planned, because the current version can be ambiguous about the net effect of draft consent orders. Other priorities mean work on the form has been delayed. An updated draft will be shared with the FPRC Forms Working Group.

• Divorce, Dissolution and Separation Act 2020: most of the detailed procedural changes as a result of the Act will be to Part 7 of the Family Procedure Rules 2010 (FPR). There will also be amendments to Part 6 for service and Part 9 to reflect changes in terminology. A wide range of changes beyond the remit of the FPRC, including changes to HMCTS IT systems, guidance and court forms, are also required. The changes are not expected to come into effect until later next year.

• Opposite-sex civil partnerships: policy agreement on the conversion of marriages to civil partnerships has been delayed because of the COVID-19 pandemic. It is hoped that regulations on conversion rights will be issued later this year. The FPRC will consider the issue again in October 2020.

• Consultation on reintroducing Calderbank offers
: a high proportion of the 280 responses to last year's consultation were supportive of reintroducing some form of Calderbank offers. Those who were not fully supportive raised concerns about smaller money cases, needs cases, domestic abuse and the higher proportion of litigants in person. Most of the Costs Working Group support making provision in the FPR for the consideration of Calderbank offers when deciding whether to make a costs order. The aim is to incentivise parties to settle early and avoid unnecessary litigation. More understanding about how smaller money cases might be affected is required however, and the FPRC asked MoJ Policy and the Costs Working Group to obtain more information on this.


Update on Practice Directions

PD 36U (Service and notification of applications and orders under Part 4 of the Family Law Act 1996 (FLA 1996)) temporarily modifies Part 10 of the Family Procedure Rules. It will be effective from 3 August 2020 to 3 May 2021.  As a result of the impact of COVID-19 and the limited availability of court bailiffs to effect personal service, courts will now be able to direct another method for service of applications and orders made under Part 4 of the FLA 1996, other than personal service.

PD 36O
– Procedure for bulk scanning of certain documents: Paragraph 7.1 of  PD 36O and paragraph 4.1 of PD 36P have been corrected by amending the defined term "filed" to "filing". The change is effective from 25 July 2020.

PD 36M
– Procedure for using an online system to generate, file and continue applications in certain public law proceedings relating to children: The number of applications and stages in public law proceedings that can be completed using the online system has been extended to potentially include "public law proceedings" or "emergency proceedings" and to applications for secure accommodation orders (section 119, Social Services and Wellbeing (Wales) Act 2014). These changes are effective from 30 August 2020.

PD 36M
– Procedure for using an online system to generate, file and continue applications in certain public law proceedings relating to children: The current pilot expiry date has been extended to 30 April 2021.

PD 36N
– Procedure for online filing and progression of certain applications for a financial remedy in connection with certain proceedings for a matrimonial order. The current pilot expiry date has been extended to 30 September 2021.

PD 36H
– Procedure for service of certain protection orders on the police: The current pilot expiry date has been extended to 30 October 2020.


Family Procedure (Amendment No 2) Rules 2020 (in force 1 October 2020)

These amend the Family Procedure Rules 2010  by inserting a new Part 37 that streamlines and simplifies the process for proceedings for contempt of court. The new Part mirrors the new Part 81 of Civil Procedure Rules 1998.


Practice Direction on committal for contempt of court in open court is issued

This Practice Direction supplements the Family Procedure Rules 2010 (and Court of Protection Rules 2007, the Criminal Procedure Rules 2014 and any related Practice Directions supplementing those various provisions) relating to contempt of court as it applies to all proceedings for committal for contempt of court. This includes contempt in the face of the court. The Practice Direction applies in all courts in England and Wales save to the extent that Part 81 of the Civil Procedure Rules 1998 applies.


The Court Fees (Miscellaneous Amendments) Order 2020 (in force 3 August 2020)

This reduces various court fees under Family Proceedings Fees Order 2008 as well as other fee orders, including various fees associated with enforcement applications. You can find the full list of changes to the Family Proceedings Fees Order 2008 here.


The Ministry of Justice issues a consultation on departing from retained EU case law for lower courts in the post-transition period

The Ministry of Justice has outlined the government's proposals on departing from retained EU case law for lower courts after the end of the transition period in a consultation issued on 2 July 2020. Following the transition period, retained EU law that has not been modified will be interpreted (according to retained case law, including EU retained case law). As it stands, only the Supreme Court and the High Court of Justiciary in Scotland will be able to depart from the retained EU case law. The consultation sets out the proposal to extend this power in section 6 of the European Union (Withdrawal) Act 2010 to other senior courts. You can find more information here.


Proposed changes to the Family Procedure Rules 2010 (FPR)

A stakeholder consultation on proposed changes to the FPR is being held by the Family Procedure Rule Committee. The aim of the consultation is to improve the procedure for general enforcement applications under Part 33, which can be used to enforce family financial orders. There are a number of proposals to address the gaps or uncertain provisions of the FPR and in doing so, making the application procedure as effective and clear as possible.


Lane Clark & Peacock LLP publishes follow-up to its report "Are tens of thousands of older being short-changed on their state pension?"

In May 2020 Lane Clark & Peacock LLP (LCP) published its report "Are tens of thousands of older women being short-changed on their state pension?" which provided an analysis of certain married women who may have been missing out on part of their state pension. After encouraging its readers to find out if they had been affected by using its calculator, more than 160,000 did. LCP have since published a follow-up report which you can find here. Under the old state pension, a basic state pension at 60% could be claimed by married women based on the full rate of their husband's contributions where the latter would be more than the pension they could get based on their own contributions. The uplift to 60% should have been automatically applied since 17 March 2008. The report highlights that tens of thousands of women have not had their pension automatically increased post March 2008.


The Ministry of Justice announces increased funding for litigants in person

Not for profit organisations who provide free legal support will be given £3.1 million in funding the Ministry of Justice has announced.

8.9.20