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Financial Remedy Update, January 2021

Naomi Shelton, Associate, Mills & Reeve LLP considers the important news and case law relating to financial remedies and divorce during December 2020.

Naomi Shelton, Associate, Mills & Reeve LLP

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

A.  News Update

Civil, Criminal and Family Justice (Amendment) (EU Exit) Regulations 2020

The Regulations make amendments to a number of statutory instruments that made provision in relation to the United Kingdom's exit from the European Union.  Click here to access a link to the Regulations.

The Family Procedure Rules 2010 and Court of Protection Rules 2017 (Amendment) (EU Exit) Regulations 2019 are among the statutory instruments amended by these Regulations.

Resolution calls for early legal advice for divorcing couples

Resolution's new poll reveals the damaging impact of divorce upon parties' mental health and calls for the government to improve access to early legal advice for divorcing couples.

The Resolution-commissioned YouGov survey, in which 1,000 divorcee participants took part, released its results to coincide with Good Divorce Week (30 November – 4 December 2020), Resolution's annual initiative to raise awareness of the work of family justice professionals. The survey found that 41 per cent of those divorced in the last five years suffered mental health episodes including depression and anxiety.  Fifty-four per cent of those declaring mental health episodes also reported to having suicidal thoughts.

The survey also found a widespread lack of awareness with regards to out-of-court alternatives. Only 21 per cent of those surveyed knew about arbitration and only 36 per cent were aware of mediation.

The results also showed that 63 per cent of all divorcees surveyed felt that having early access to professional advice, where legal rights and options are made clear from the outset, would have improved their experience. This, coupled with the above, has led to Resolution calling for greater support for divorcing couples.

Click here to find out more about the survey results.

Family Justice Board statement summarises the priorities for the family justice system

The Family Justice Board has issued a statement summarising the priority actions the Board intends to work towards in response to both the immediate pressures within the family justice system and for longer-term reform.

Two further documents accompanying the statement outline a more detailed discussion with regards to the priorities pertaining to public family law and private family law matters. The documents are being circulated to family law practitioners and further information will also be disseminated in early January 2021 which will include details of local, regional and national implementation arrangements.

3.7 per cent increase in new private law cases received by Cafcass

Cafcass received 4,088 new private law cases in November 2020 which is 3.7 per cent (114 cases) higher than in November 2019.  Click here to view month-by-month figures. 

Increase in MIAMS between July and September 2020

Mediation Information and Assessment Meetings ("MIAMS") increased by 8 per cent between July and September 2020, compared to 2012. These volumes are comparable to pre-Covid levels showing an almost full recovery which may be partly due to sessions taking place via video link. Click here to view the full statistics.

Ministry of Justice statistics show family court activity between July and September 2020 returning to 2019 levels

The latest statistics from the Ministry of Justice show that activity in the family courts increased between July and September 2020, following the decline in the previous quarter, with 68,805 new cases started in the family courts. This represents minimal change in the number of cases started compared with the same quarter in 2019.

Examples of increased family court activity include the number of new domestic violence remedy order applications increasing by 26 per cent; private law cases increasing by 8 per cent and financial remedy cases increasing by 5 per cent.  The mean average time from divorce petition to decree nisi was 29 weeks and to decree absolute was 53 weeks.

Addendum to 2019 Practice Guidance regarding placements in unregistered children's homes in England and unregistered care home services in Wales

The Practice Guidance sets out steps that must be followed in circumstances where an application is made to the court for an order under the court's inherent jurisdiction to authorise the deprivation of the liberty of a child. This addendum provides an additional required step as follows: the court must include in any order approving the placement of a child in an unregistered placement, a requirement that the local authority should immediately notify OFSTED (England) – if the placement is in England – or the Care Inspectorate Wales – if the placement is in Wales – and provide them with a copy of that order and the judgment of the court.

The addendum guidance issues by the President can be found here.

B. Case Law Update

V v W [2020] EWFC 84, 2 December 2020

In this case, Sir James Munby dismissed the husband's ("H") application for disclosure of the transcript of the FDR hearing and various associated documents into civil proceedings involving recovery of a single joint expert's fees incurred in financial remedy proceedings.

Mr X, a single joint expert, was appointed in financial remedy proceedings to value a company owned by H. H was to pay the fees. The report was produced late and received by H two days before the FDR hearing. In April 2019, Mr X's firm issued a claim against H seeking payment of its fees. Later that month, H's company became insolvent and entered a USA "Chapter 11" bankruptcy.

H denied liability for the single joint expert's fees, alleging Mr X was negligent. H argued he was prejudiced in the financial remedy proceedings as the report was filed late, and at the FDR, Moor J indicated the trial judge was likely to make findings of fact regarding H's interest in the company, based on the report, which would affect the financial provision H would have to make to his wife ("W"). H claimed he negotiated and reached a financial settlement with W in reliance on the report, or the effect the report was likely to have on the trial judge. H subsequently applied to vary the financial order.

In June 2019, Moor J refused H's application for disclosure, but gave him liberty to apply. Moor J emphasised that non-disclosure of FDR hearings is vital and an essential prerequisite to aid fruitful discussion for the purposes of settlement. Anything said at an FDR is not admissible in evidence, except at the trial of an individual for an offence committed at the FDR, or in the exceptional circumstances set out in Re D (Minors) [1993] Fam 231 regarding safeguarding.

In his judgment, Munby J highlighted the compulsory nature of the FDR and the importance of the parties' obligation to hold nothing back (r. 9.17 FPR 2010 and PD 9A).

Of the FDR hearing, Munby J said (26):

"It is important to remember that the FDR is entirely a creature of statute, being part of the statutory process for dealing with proceedings – financial remedy proceedings brought under the Matrimonial Causes Act 1973 – which are themselves entirely a creature of statute. So far as concerns the FDR, the relevant provisions are in FPR 9.15(4), 9.17 and PD9A, para 6. For present purposes, two aspects of the FDR process are significant. The first is that the FDR is compulsory and both parties must personally attend: the parties cannot themselves contract out of it, though they can pre-empt the FDR by embarking upon a 'private' FDR: see President's Circular: Financial Remedies Court Pilot Phase 2, 27 July 2018, paras 7-11. The other is the obligation on the parties to hold nothing back at the FDR and, indeed, to put forward their best offers. Moreover, it is fundamental that the FDR is a confidential process, differing from other types of family hearings in two significant respects: first, journalists are not permitted to attend the FDR: FPR 27.11(1)(a); secondly, the judge hearing the FDR must have no further involvement with the case: FPR 9.17(2)."

Munby J held that PD 9A was not wrong in law and he was bound by it: it operated as an absolute bar to H's attempt to make use of anything said or done at the FDR in support of his defence and counterclaim in the civil proceedings.

Crowther v Crowther and Others [2020] EWHC 3555, 22 December 2020

In this case Lieven J made a costs order against the wife ("W") for discontinuing proceedings relating to a preliminary issue in which she had alleged fraud against the husband ("H") and a number of other respondents. 

The couple had been engaged in "highly acrimonious and litigious" financial remedy proceedings since late 2019. In December 2019, W successfully made an urgent without notice application for a freezing injunction against H and the other respondents (called "the Castle parties"). H and W had run a successful shipping business and W alleged that they (i.e. she and H) were the beneficial owners of five ships worth £7-10million.  She said there was evidence that H was conspiring to reduce his financial position by transferring assets away from himself and argued that without a freezing injunction, the assets would disappear offshore and she would be left with no redress.

In February 2020, the Castle parties issued proceedings in the Admiralty Division, asserting legal and beneficial ownership of four of the ships, and related relief. They also asserted that companies controlled by the Crowthers owed Mr Knight (one of the respondents) £5million. H immediately conceded the Castle claims in the Admiralty proceedings and entirely supported Mr Knight's version of events that he had helped the Crowthers out of some considerable financial difficulties. In those proceedings, W repeatedly (over the course of a year) pleaded fraud, sham and conspiracy against H and the Castle parties and also alleged that Mr Knight was defrauding HMRC. 

The freezing injunction was temporarily discharged in respect of the ships but later reinstated by the Court of Appeal. The Admiralty proceedings were also transferred to the Family Division. A preliminary issue hearing was listed and extensive preparation for that trial was undertaken including a disclosure exercise involving thousands of documents (and also applications to release sale proceeds of the family home to pay legal fees). Days before the hearing was due to start, W reached a settlement with the Castle parties, without involving H. The settlement was set out in a consent order with the terms in a confidential Tomlin order. 

A hearing took place because although W and the Castle parties had agreed that both the preliminary issue proceedings and the Admiralty proceedings were to be discontinued, it was not clear where this left W's allegations against H. At the hearing, however, she accepted that all her claims of beneficial interest against him, as well as any allegations of sham, fraud or conspiracy, would have to be discontinued. 

Although the terms were in a Tomlin order, because the hearing was in open court and the parties openly referred to the terms in court, the judge felt it was "appropriate and necessary" to disclose the figures in the judgment to help understand the context of the litigation. The Castle parties agreed to pay W £750,000 in a series of instalments and release the LLP company owned by the couple from £5.6million in unpaid charter income and W of £1million in other alleged loans. There was no order as to costs and W's claims were to be discontinued on a no admissions basis. The lump sum was to be paid in tranches, the first £80,000 on 24 December 2020.

H was not a party to the agreement and it was unclear at the hearing where this left W's allegations in respect of H. Counsel for W accepted that all claims of beneficial interest against H would have to be discontinued, as would any allegations of sham, fraud or conspiracy. Counsel for the Castle parties stated that H would not be pursued for the alleged personal debts against him and the company to which the unpaid charter income was allegedly owed was now in liquidation.

Lieven J clarified that she understood that H was not going to argue at financial remedy proceedings that he had a large outstanding debt to the Castle parties which should be taken into account in any matrimonial finance award.

In light of these events, H applied for costs. 

The judged noted that proceedings concerning a preliminary issue are not financial remedy proceedings and so the 'no orders as to costs' rule does not apply (r.28.3(5) FPR 2010) and therefore costs follow the event. There is also a presumption in the CPR 1998 that a party who discontinues proceedings is liable for the other party's costs (r.38.6 CPR 1998). However, r.38.6 CPR 1998 does not apply to family proceedings as it is not referred to in the FPR 2010. Lieven J's view was that nonetheless, r.38.6 was relevant.

In all High Court Divisions, the basic principle is fraud should not be alleged without sufficient evidence. Fraud has serious reputational consequences and parties should be reticent about pleading it (Playboy Club v Banca Nazionale Dei Lavori Spa [2018] EWCA Civ 2025). Therefore, alleging fraud and withdrawing it as compared to discontinuing other proceedings, strengthens any argument for costs. The judge noted that W's conduct had been "fairly extraordinary" and that H had faced a "grossly unfair" situation particularly as the allegations had been widely publicised. 

Lieven J stated that H's poor litigation conduct was irrelevant to the principle of whether W should pay his costs of the preliminary issue (and his conduct was also probably more understandable now too). Any unreasonable costs incurred by him were said to be a matter for the costs draughtsman and judge.

Lieven J rejected W's argument that financial remedies litigation was different from other litigation because it concerned the fair distribution of family assets. It is not excepted from the basic principles of proper litigation conduct. It should not be permitted to develop into a discrete entity where the normal principles governing disclosure, pleading and discontinuance do not apply. Case law makes clear that a party who pleads fraud unsuccessfully can expect to pay costs on an indemnity basis (Clutterbuck v HSBC [2015] EWHC 3233 (Ch)). Family cases are not excepted from this principle.

H sought £80,000 to be paid on account.  The judge considered there was no prospect of him recovering less than that amount on a detailed assessment, and it was appropriate that H should be able to recover this part of his costs at this stage. Lieven J therefore ordered W to make a payment on account in the sum of £80,000.  W's legal fees were in the region of £900,000.

Nadeem Shahzad v Nusrat Mazher and The Queen's Proctor (intervener) [2020] EWCA Civ 1740, 18 December 2020

This case concerned the appeal of the husband ("H") against the setting aside of a decree absolute, the rescission of a decree nisi and the setting aside of a certificate of entitlement to a decree made in the divorce proceedings between himself and his wife ("W"). 

H had petitioned for divorce in 2017 on the grounds that he and W had been separated for over five years (since 2006). The petition proceeded undefended. However, after decree nisi had been pronounced W applied for it to be set aside on the basis that she and H had only been separated since 2016. Unfortunately, before that application could be heard, decree absolute was made. The Queen's Proctor asked that both decrees be set aside. The trial judge had agreed to this request on the basis that (1) H had fraudulently mis-stated the date of separation and (2) contrary to r.7.32(2) FPR 2010 the decree had been made absolute whilst W's application was still pending. H appealed.

The Court of Appeal held that the court did not have the power to set aside a decree absolute where the evidence in support of the fact relied upon was false. In the absence of procedural irregularity or want of jurisdiction on the part of the court to entertain the petition, a decree absolute was unimpeachable. That conclusion was supported by s.18(1) Part III Senior Courts Act 1981 which made it clear that a party could only challenge a decree before it was made absolute, and ss.8 and 9 MCA 1973 were directed towards the Queen's Proctor intervening before the decree was made absolute. 

However, the trial judge had not relied solely on H's fraud as a basis for setting aside the decree absolute. He had also relied upon procedural irregularity. That irregularity made the decree absolute voidable, and the judge was entitled to set it aside. He was also entitled to rescind the decree nisi, set aside the certificate of entitlement and dismiss the petition. Given his conclusion that H's evidence was false, there was no reason to allow the petition or the decrees to stand.