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Financial Remedy & Divorce Update, September and October 2020

This update covers the months of September and October 2020.

Naomi Shelton, Associate, Mills & Reeve LLP

As usual, the monthly update is split into two parts.

A News Update

Ministry of Justice Statistics set out the impact of Covid-19 on family court activity

The latest statistics show the substantial effect Covid-19 has had on family court activity between April and June 2020.  For example, the number of domestic violence remedy order applications increased by 24% compared to the same quarter last year and the mean average time from divorce petition to decree nisi was 23 weeks and decree absolute was 47 weeks.  Financial remedy applications made in April to June 2020 was down 18 per cent on the equivalent quarter in 2019.

Follow-up consultation report on the effectiveness of remote hearings published
Following Nuffield Family Justice Observatory (NFJO)'s initial research, at the request of the President of the Family Division, Sir Andrew McFarlane, the NFJO has published its findings of a follow-up consultation detailing reflections and experiences of remote hearings in the midst of the pandemic.
Between 10 September and 30 September 2020, over 1,306 respondents completed a survey and focus groups and interviews were undertaken with parents and several organisations submitted additional information.  The report highlights common problems such as: parents participating in remote hearings alone; a lack of communication between legal representatives and their clients before hearings; and communication difficulties during hearings due to the need to use more than one device or to adjourn the hearing.  Particular difficulties are experienced by parents who require an interpreter or who have a disability.

In response to the report, the President said:

"This emergency is without precedent. Judges and others have worked tirelessly, and continue to do so, so that the Family Court has continued to function without a break since the start of 'lockdown' in March. We have adjusted, developed and adapted our methods of working as the crisis has persisted.  Much of the work of the Family Court cannot be left to wait as many cases, involving the welfare of children as well as adults, are urgent. Because of the need for social distancing most cases are currently heard remotely (either wholly or in part). The report highlights that everyone is doing their best in the circumstances.

"This important piece of independent research, which holds a mirror up to the system, is a most valuable reflection after six months of remote working. Encouragingly, most professionals, including judges, barristers, solicitors, Cafcass workers, court staff and social workers, felt that, overall, the courts were now working more effectively and that there were even some benefits for all to working remotely.

"However, the report highlights a number of areas of concern that need to be addressed.  There are clearly circumstances where more support is required to enable parents and young people to take part in remote hearings effectively.  It is worrying that some parents report that they have not fully understood, or felt a part of, the remote court process.  Whilst technology is improving, there is clearly still work to be done to improve the provision of Family Justice via remote means. I am very alert to the concerns raised in this report, and I will be working with the judiciary and the professions to develop solutions."

Financial Remedies Court Pilot extended to the South West
With effect from 1 October 2020, the Financial Remedies Pilot be will launched in the South West.  The South West has been divided into three zones: 1) Bristol 2) Devon, Cornwall and South Somerset and 3) Dorset & Hampshire.  The lead judge in each zone will now coordinate the detailed local arrangements.

Access Mr Justice Mostyn's revised standard orders

Following Mr Justice Moystn's updates to the standard financial enforcement orders, all of the orders have now been gathered into one zip folder

Women divorced later in life may be missing out on state pensions

According to the analysis of LCP, tens of thousands of women who divorce later in life may be missing out on huge sums in state pension rights.  During 1998-2018, more than 100,000 women aged 60 divorced according to figures from the ONS.  The vast majority reached system state pension age before 6 April 2016 come under the "old" state pension system which makes significant provision for divorced women.  However, if they divorced after state pension age they benefit from a pension uplift only if they notify the Department for Work and Pensions ("DWP") of their divorce.

The LCP is encouraging women who divorced over state pension age and who reached state pension age before 6 April 2016 to notify the DWP as a matter of urgency to get their state pension reviewed.

The Law Society launches legal action against the Legal Aid Agency
The Law Society has lodged a judicial review against the Legal Aid Agency claiming that it failed to consult properly about a decision to move legal aid cost assessments in-house. 

Law Commission launches consultation on marriage law reform
The Law Commission is consulting on proposals to give couples greater freedom over where to hold their weddings and the form ceremonies can take.  They have put forward that the laws governing weddings, originally formed in 1836, are no longer suitable for the 21st century.  Proposals include allowing weddings to take place outdoors and in a wider variety of buildings (including private homes). 

The Law Commission are consulting on the proposals until 3 December 2020 with the aim to publish the final report in the second half of 2021.  Visit the Law Commission website for further details.

Guidance for family law disputes involving the European Union
The Ministry of Justice has published guidance for legal professionals, applicable from 1 January 2021, in respect of family law disputes involving the EU.  Click here to access the guidance and the EU Commission's published guidance,

The Pandemic's effect on children's wellbeing report

The State of the Nation 2020 report collates a range of published data to better understand children and young people's experiences of the pandemic and the continued support that will be required.

Published guidance for separated families and contact with children in care

The House of Commons Library has published a paper in response to key questions arising from the impact of the coronavirus pandemic on separated families, access to children and maintenance arrangements.  The paper can be accessed here.

Increase in new private law cases received by Cafcass 
Cafcass received 4,262 new private law cases in September 2020, which is 14.5% (540 cases) higher than in September 2019.  Click here to view month-by-month figures.

United Kingdom joins 2007 Child Support Convention

On 28 September 2020, the UK deposited its instrument of ratification to the HCCH Convention of 23 November 2007 on the International Recovery of Child Support and Other Forms of Family Maintenance (2007 Child Support Convention).  The new instrument of ratification ensures continuity in the application of the Convention after the conclusion of the transition period following the withdrawal of the UK from the EU.  The 2007 Child Support Convention will enter into force for the UK on 1 January 2021.

Adoption and Children (Coronavirus) (Amendment) Regulations 2020 to extend until 31 March 2021

The Department for Education has decided to extend some of the regulations to 31 March 2021which were originally due to expire on 25 September 2020.  Access further details and download the Government's response document detailing the extensions here.

B Case Law Update

ZN v GN, [2020] EWHC 1316 (Fam), 1 May 2020
In this case Cohen J considered an application by a husband ("H") for financial remedies from his wife ("W"), who was a beneficiary of several trusts.  The parties had been married for 22 years and had three children together, aged 19, 16 and 10. The children's school fees were met from W's family trusts (although the parties paid for extras). In October 2018, W filed a petition for divorce, and decree nisi was pronounced in March 2019.

H accepted that in the circumstances of the marriage, and with the wealth emanating from W's family, his claim was needs-based.

The parties' assets comprised:

• H House, the former family home, had net equity of £3.887m.

• H had no significant liquid funds and an outstanding costs liability of c. £25,000.

• W had £34,000 in the bank and polo ponies worth a similar amount.

• W had jewellery worth £750,000.

• W had liabilities to her father and to her trusts of £938,000 in total.

• W had a 16% interest in her father's property in the south of France, notionally worth just over £300,000.

• H had a company with assets of £118,000 net of tax.

• H had pensions with a value of £322,000.

W was the principal beneficiary of two trusts: "the DV Trust" and "the A Trust". A third trust, "the R Trust", paid the children's educational expenses. There were other trusts from which W could benefit, but she was more likely to do so after the death of her father.

H's position was that there was no prospect of the trustees demanding repayment from W, and that they would provide whatever sum H was awarded by the court. The trustees had made clear that they would loan W £2.2m to settle H's claim but that, beyond that, they said W had to access her own resources. Cohen J said he did not feel bound by this limit.

W had no relevant employment history and it was not suggested that Cohen J should attribute any earning capacity to her. W's trusts provided funds for her to meet her costs, and those of the children, in addition to paying for the acquisition and renovation of the various properties the parties had purchased during the marriage and the children's education. W's father also provided a number of holidays including visits to his home in the south of France.

W's regular income comprised £75,000 a year from the DV Trust (plus whatever was needed to pay the tax on that sum), £9,000 a year for attending directors' meetings of the HV Settlement, and £5,400 a year as her income entitlement from the HV Settlement. Her net income was about £90,000 a year, although over the last few years she had received far more than that.

H worked in insurance but he had not climbed the corporate ladder and his income at its highest had not reached £80,000 a year. His average earnings from his business over the last four years came to £60,000 a year gross and Cohen J took that figure as H's income going forwards.

Cohen J found there was "no doubt that from at least 2000 the standard has been comfortable and from 2015 very comfortable" [34].  H House had a games room, swimming pool, tennis court and extensive grounds, although it did not represent what the family had enjoyed before, the judge having regard to the previous three matrimonial homes. They had not had a second home except for a period between 2007 and 2010, and prior to W taking up polo, "they did not have particularly expensive hobbies or indulge in high-end shopping" [35]. 

Cohen J accepted W's evidence that she did not expect to stay in H House beyond the next three years (by which time the youngest child would have started at secondary school). He did not regard H's wish to have a home and lifestyle referable to that at H House as reasonable, given the short duration of its occupation and likely limited lifespan.

The parties' expenditure over the last few years was also unrepresentative of the marriage as a whole. Those days were "largely gone" [38] and H no longer had spare capital (which had been spent, principally, on his legal costs).

Cohen J had no doubt that W's family would "continue to be generous to her" [39].  Homes abroad would continue to be available for holidays, and W's basic income of £90,000 a year was "likely to be a minimum" [39]. 

H said that to meet his needs he should receive £5million, on top of his pension funds. It was suggested that he should receive a housing fund of £3million, and an income fund of £2.3million, which together with his pensions would produce £125,000 a year, on the assumption that he earned £40,000 a year gross until he was 67. The required income fund to produce £125,000 a year was £1.45million if H was expected to downsize when he retired and so produce £1m to add to his income fund.

W said that H's housing fund should be £1.8m. She said that her offer of £2.2million would release £400,000, which would permit H to live on £80,000 a year until he retired (if he earned £75,000 a year until then), and at two-thirds of this level (£53,000) in retirement.

Cohen J concluded that H could rehouse at £1.7million which with SDLT would require a housing fund of £1.817m.  

H's budgets put his income needs at £160,000 for himself and £35,000 for the children before retirement, and £170,000 for himself and £27,000 for the children after retirement. This included £55,000 a year for holidays, £19,000 for staff, and £28,000 for running his car. Cohen J regarded these budgets as "significantly on the high side" and regarded "many of the expenses as exaggerated" [55].  Although H said the budgets were low and did not even represent what the family used to spend, Cohen J said it was clear that that sort of money had never been available to the family before 2015.

H's counsel suggested that, notwithstanding H's expressed need, Cohen J might find that a budget of £125,000 a year was reasonable. W suggested £80,000 a year.   In the end, Cohen J almost met the two proposals in the middle and found H was entitled to £100,000 a year until retirement.  After retirement, the figure would reduce to £70,000 a year. 

A capital sum of £1.238million would be needed, from which H's pension funds would be deducted. Cohen J also deducted the capital in H's business (at £118,000) which meant that overall H needed £800,000 to cover his income needs.  Interestingly, Cohen J took the view that it would not be right to work on the assumption that H would or should downsize in retirement.

The total award was therefore £2.85million on a clean break basis. Overall, H would end up with £3.27million out of £4.55million (the parties' personal assets after repayment of their loans). That was over 70%, and if the trust loans were ignored, it would still be over 60%. (These figures included W's non-matrimonial jewellery.  Cohen J was satisfied that W could afford the award and said "if the trustees would not help her out over and above £2.2million, she would have to make a decision over what assets to sell" [64].

Haley v Haley [2020] EWCA Civ 1369, 23 October 2020
In this case, the Court of Appeal considered the test to be applied where one party opposes the making of an order reflecting an arbitral award. This issue is not referred to in Practice Guidance (Family Court: Interface with Arbitration) [2016] 1 WLR 59, but has been considered in first instance decisions.

Following an IFLA financial scheme arbitration, the husband ("H") applied to appeal the arbitral award, or alternatively for an order declining to make an order reflecting the award, and for the court to exercise its discretion.  H believed the arbitrator's award was unfair.  Deputy High Court Judge Ambrose dismissed the appeal and made an order reflecting the award. H appealed.

As financial orders are made under the Matrimonial Causes Act "MCA" 1973, not the Arbitration Act ("AA") 1996, King LJ held there was no requirement to first make an application under sections 57, 68 or 69 AA 1996 before asking the Family Court to decline to make an order under the MCA 1973 reflecting the award.

The court can decline to make an order reflecting an agreement negotiated by, or on behalf of, the parties, where an injustice will be done by holding the parties to their agreement. The same principle applies where the agreement is for a third party to decide a dispute. Even though the parties had signed a contractual agreement to arbitrate (ARB1 FS), where an injustice will be done if an order is made reflecting the arbitral award, the court can decline to make the order.

The appeal procedure (Part 30 FPR 2010) should be used when deciding whether to decline to make an order reflecting an award. A party must "show cause" on paper why an order should not be made reflecting the award, like the permission to appeal filter (r. 30(7) FPR 2010). If there is a real prospect of showing that the award is wrong, the case should be set down for a hearing which, like an appeal, is confined to a review and is not a rehearing, and is subject to case management directions in relation to updating or other evidence and r.30.12(1)(b) FPR 2010

The Court of Appeal considered a number of family court authorities in determining what test should be applied including the comment of Munby J in S v S (Arbitral Award: Approval) [2014] EWHC 7 (Fam) addressing "how wrong a decision has to be in order to invoke the jurisdiction" [64].  The Court of Appeal's decision clarifies that the court will only substitute its own order "if the judge decides that the arbitrator's award is wrong; not seriously, or obviously wrong, or so wrong that it leaps off the page" [74].

FS v RS and JS [2020] EWFC 63 30 September 2020
In an unprecedented case, a 41-year old suffering from mental health disabilities applied for maintenance from his married parents, who had always financially supported him. He argued that s.27 MCA 1973 and Schedule 1 CA 1989 should be construed as including wording permitting his applications, either by statutory construction, or by reading down under s.3 HRA 1998 to prevent breaching his rights under Article 1, Protocol 1 of the European Human Rights Convention and Articles 2, 6, 8, and 14. He also applied as a "vulnerable adult" under the inherent jurisdiction.

Sir James Munby opened his judgment by stating, "This is a most unusual case. Indeed, so far as I am aware, and the very experienced counsel who appear before me do not dispute this, the case is unprecedented. Certainly, the researches of counsel have identified no decision directly in point. The applicant's own description is that his applications are "novel." I suspect that the initial reaction of most experienced family lawyers would be a robust disbelief that there is even arguable substance to any of it."

Munby J rejected the applicant's arguments.  He concluded that the statutory language of s.27 MCA 1973 and para 2(4) of Schedule 1 CA 1989 were clear: (a) the claim under s.27 failed because there had been no previous periodical payments in place (s27*6A) and (6B).  The court also agreed with the respondents' position that there is no free-standing jurisdiction under the 1973 Act for a child to bring a claim for maintenance against a party to a subsisting marriage; (b) the claim under Schedule 1 failed because the respondents were living with each other in the same household.

Munby J examined the legislative history of section 27 and Schedule 1.  The Law Commission reports in 1969 (children cannot apply to court for maintenance against their married parent) and 1982 (adult children should only be able to apply for maintenance if the parents' relationship has broken down) explicitly clarify the intentions behind each statute.  A precise Parliamentary purpose was clear in both provisions, as highlighted by the Law Commission reports, so reading down would be contrary to the schemes laid down by Parliament.

Although the applicant did not seek it, Munby J observed that a declaration of incompatibility under section 4 HRA 1998 could not be made, as Articles 1 of Protocol 1, 2, 6 or 8 are not engaged. Article 14 was therefore irrelevant, but in any case, there was a disconnect between the applicant's arguments under Article 14 and the proposed reading down.

Maintenance claims are outside the accepted parameters of the exercise of the inherent jurisdiction for vulnerable adults, which is solely intended for when an adult has capacity but their ability to make decisions has been compromised (DL v A Local Authority [2012] EWCA Civ 253). The inherent jurisdiction cannot be used to compel third parties to provide money or services (Re C [1991] 2 FLR 168) or to oust statutory schemes explicitly dealing with the claims being made (JK v Local Health Board [2019] EWHC 67 (Fam)).

Munby J also warned of costs implications for those seeking to reopen arguments on circulation of draft judgments, by making a costs order against the applicant on an indemnity basis for the relevant post-hearing period.  The applicant was ordered to pay almost £60,000 of the respondents' costs.