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Financial Remedy Update – February 2021

Rose-Marie Drury, Principal Associate, Mills & Reeve LLP considers the important news and case law relating to financial remedies and divorce during January 2021.

Rose-Marie Drury, Principal Associate, Mills & Reeve LLP.


As usual this update is provided in two parts:


News

• AdviceNow has published a guide to helps parties understand pension assets and how they can be valued and split on divorce or dissolution – see New help for divorcing couples as they are urged to consider sharing their pensions and A survival guide to pensions on divorce .

• The House of Commons Library has published a briefing paper looking at the effect of Brexit on divorce proceedings: click here.

• HMCTS has updated guidance for those who use the online FR services: click here.

• The President of the Family Division has published The Family Court and COVID 19: The Road Ahead 2021 which updates the framework for the operation of the Family Court during the pandemic: click here.

• The Courts and Tribunals Judiciary has published an organogram charting the national and regional structure of the Financial Remedy Court. For the organogram, click here.

• The Rt Hon Lady Black of Derwent retired as a Supreme Court Justice on 10 January 2021. The President of the Supreme Court, Lord Reed, made a short video to pay tribute to her work and to say a fond farewell to her on behalf of everyone at the Supreme Court.

• Among various amendments to the civil aid eligibility criteria, the existing cap on the amount of mortgage debt that can be deducted from a property's value has been removed. This means all mortgage debt will now be deducted which in turn means that more individuals will now pass the financial eligibility criteria for civil legal aid. This change came into effect on 28 January 2021. For more details, click here.

• The Ministry of Justice has published a webpage bringing together guidance for legal professionals about what they need to do from 1 January 2021. The page includes guidance for legal professionals about family law disputes involving the EU, published on 30 December 2020. For the guidance page, click here. For a page bringing together guidance for people who are involved in UK-EU cross-border family law disputes and explaining what needs to be done from 1 January 2021, click here.


Cases

Rattan v Kuwad [2021] EWCA Civ 1

The Court of Appeal gave judgment following the Wife's appeal against an order of HHJ Oliver.

The parties had married in 2009 and separated in 2019. The Wife subsequently commenced divorce and financial remedy proceedings in April 2019. The Wife applied for maintenance pending suit. The application was heard by a deputy district judge in October 2019 and the Husband was ordered to pay MPS of £2,200 pcm. The Husband appealed that order. HHJ Oliver allowed the appeal, finding that the DDJ had not carried out a critical analysis of the Wife's needs, school fees had been included in the order and there had been an assumed reduction in the mortgage instalments of £600 pcm. Whilst the judge was sure the Wife needed maintenance he did not consider he was in a position to decide what order should be made in place of the DDJ's order. The Wife appealed.

Giving the lead judgment for the Court of Appeal, Moylan LJ commented that the application for MPS did not require any extensive analysis but could be determined justly with a succinct summary and consideration of the relevant factors.

The substantive question was whether the judge was right to decide the DDJ had failed to undertake a critical analysis of the Wife's needs. Moylan LJ found that the DDJ had undertaken a sufficient analysis and had not been wrong to include school fees as part of the maintenance order. The DDJ's order for maintenance was restored. The court was required to undertake an analysis which was sufficient to be satisfied that the award was reasonable. In some cases that might require a detailed examination of a budget but in others it would be immediately apparent whether the listed items represented a fair guide to income needs. The fact that some items might not be incurred every month did not mean they should be excluded for the purposes of determining maintenance nor was it necessary for an applicant to provide a list of income needs distinct from that in Form E. 

Moylan LJ concluded that it would be appropriate for a court determining any appeal of MPS to also determine what alternative order, if any, should be made.


AA v AHM [2020] 2 WLUK 743

The Wife and Husband were Kuwaiti. They married in Kuwait in 2002 and had three children together. They subsequently separated and divorced in Kuwait with a final judgment in financial remedy proceedings being given in 2019.

The parties owned three properties in London in joint names. In February 2019 the Wife brought proceedings under the Trusts of Land and Appointment of Trustees Act 1996 for a declaration that the parties equally owned the beneficial interest in the properties and applied for an order for sale. Those proceedings were ongoing and the Husband was defending that application.

The Wife then applied under Part III Matrimonial and Family Proceedings Act 1984 (Part III MFPA 1984) in June 2019 in relation to two of the properties which had been former matrimonial homes. The matter came without notice before HHJ O'Dwyer who granted permission for the Wife to bring her application to consider whether permission should be granted to the Wife. The Husband applied to set aside the order, claiming that HHJ O'Dwyer did not have jurisdiction to grant permission, that only a High Court Judge had jurisdiction, that the properties were not matrimonial homes and the Wife was misleading/there were deficiencies in her application. 

Moor J found that HHJ O'Dwyer had jurisdiction to grant permission. In general an application for permission could be heard by judges of the Financial Remedies Court, which would usually be a District Judge but might be a Circuit Judge. They should only come before a High Court Judge if they were exceptionally complex.

The allocation directions in the Family Court (Composition and Distribution of Business) Rules 2014 state proceedings under sections 12 and 13 MFPA 1984 where one of the parties did not consent to the grant of permission or the parties consent to the grant of permission being granted but did not consent to the substantive order sought should be dealt with before a judge of High Court level. However, in Barnett v Barnett [2014] EWHC 2678 (Fam) Holman J had considered that routine applications for leave should be made to a local district judge who would then decide whether an application to the High Court was necessary. Such a procedure was sensible, saved time, costs and inconvenience. Holman J had recommended that r8.26(a) FPR 2010 should be amended to remove 'district judge', which had been done. Further, paragraph 25 of the President's Guidance: Jurisdiction of the Family Court: Allocation of cases within the Family Court to High Court judge level and transfer of cases from the Family Court to the High Court 2018 had highlighted generally proceedings under s12 and s13 Part III MFPA 1984 should be allocated to a district judge for both permission and the substantive decision unless the case had some special feature or complexity. 

Moor J was satisfied that the Wife had established a prima facie case that two of the properties were matrimonial homes. It was open to the Husband to contend at a final hearing that they were not matrimonial homes but his contention did not justify setting aside permission for the Wife to bring the application. Whilst the Husband made various criticisms of the Wife's application there was no 'knockout blow' justifying set aside.


AZ v FM [2021] EWFC 2

The parties were married for 15 years before divorcing. They had one child together who was age 19 at the time of the hearing. A final order was made in financial remedy proceedings in June 2011. In 2017 the Husband applied to vary the child maintenance he paid. DDJ Butler made an order capitalising the Husband's child maintenance payments. The Husband appealed. HHJ Everall QC refused permission to appeal on paper. The Husband applied for an oral permission hearing and the matter came before Mostyn J.

Mostyn J considered that the statutory provision was clear. The lump sum had not been ordered under s31(7A) or (7B) Matrimonial Causes Act 1973 (MCA 1973) since that applied only to a party to the marriage and only following the discharge of a periodical payments order. He considered the lump sum had been ordered under s31(5) MCA 1973. Whilst there was a prohibition in s31(5) MCA 1973 that, subject to certain exceptions, the court could not on a variation application impose a property adjustment order in favour of a party to the marriage or a child of the family nor could it impose a lump sum order in favour of a party to the marriage, there was no such prohibition on it imposing a lump sum in favour of a child of the family.

Mostyn J was satisfied the jurisdiction to order a lump sum existed and the trial judge had been entitled to exercise it in the case but commented it was a 'very rare bird indeed'. On the facts, a lump sum was justified because of the combination of incessant litigation on which the Husband was found to have thrived, repeated defaults by the Husband and the age of the child and relatively short period until the maintenance liability expired.


FRB v DCA (No3) [2020] EWHC 3696 (Fam)

In March 2020 Cohen J handed down judgment following the final hearing in the financial remedy proceedings. Cohen J's order had the effect that the Husband was to pay the Wife £64 million comprising of the matrimonial home mortgage free (£15 million) and a lump sum by instalments totalling a further £49 million. The lump sum was to be paid as follows:

a) repayment of the mortgage (approximately £12 million) on the matrimonial home within six months and then transfer of the property;

b) £30 million to be paid within six months of the date of the order;

c) £19 million to be paid within 18 months of the date of the order.

The order provided for interest to be paid at the rate of 4% pa or such higher rate as the court subsequently ordered in the event of late payment of b) or c) and that if b) was not paid on time the whole balance would become payable. The Husband was further ordered to pay certain bills at the matrimonial home, periodical payments to the Wife at the rate of £720,000 pa to be reduced pro rata by the proportion of the amount of the £49 million that had been paid and an order for child maintenance and school fees.

The Husband appealed and was refused permission in August 2020. In September 2020 the Husband then applied to vary the quantum and timing of payments in the order or alternatively for the lump sum to be set aside and re-quantified on a Barder event basis. In November 2020 the Wife applied for an increase in her periodical payments to £2.5 million pa, interest on the three unpaid lump sums together and an increase in the rate of interest to 8% and a legal services order in the sum of £1.4 million.

The parties' applications came back before Cohen J.

Cohen J dismissed the Husband's applications. Cohen J found that there was a lack of any evidence submitted by the Husband to show a fundamental change in his worth and he noted the Husband had not provided trading figures, profit and loss accounts, underlying documentation or valuations. Whilst some of the sectors the Husband and his family were involved in, such as hotels and airlines, would have been negatively affected by the pandemic, his interests were varied and it was not obvious there was a collapse in his fortune. Cohen J further noted it was important to consider the long term and most commentators believe at some stage in the next couple of years the world economy will be back to where it was prior to the pandemic.

Dealing with the Wife's applications, Cohen J found in the current economic climate it would be excessive to increase the rate of interest above 4%. He confined payment of interest to the second lump sum as the Husband was continuing to pay the mortgage on the matrimonial home (and the Wife was therefore not being kept out of that element of the award) and the non-payment of the third lump sum had not yet arisen.

Cohen J found that in principle the Wife's periodical payments should be increased to give the Husband incentive to make payment.

The Wife received a legal services order to enable her to pay her unpaid costs (with credit being given to the Husband against the final payment of the lump sums), to fund proceedings between the parties over artwork and Children Act proceedings.


Ralph v Ralph [2020] EWHC 3348 (QB)

Morris J heard an appeal by the Claimant against an order dismissing his claims for a declaration of beneficial interest in a property owned in the parties' joint names and an order for sale under the Trusts of Land and Appointment of Trustees Act 1996.

The Claimant was the Defendant's eldest son. The property which was the subject of proceedings was the Defendant's home where he lived with his wife and two of their children. The Claimant had lived in the property between 2003 and 2007 but had not lived there since.

The parties purchased the property in joint names in 2000. The TR1 recorded that the parties held the property on trust as tenants in common in equal shares. The Claimant's position was that was an accurate reflection of the parties' intention. The Defendant's case was that the declaration was made under a common mistake, the parties never intended joint beneficial ownership in equity and the Claimant was only included on the title to assist him in securing a mortgage. The Claimant made no contribution to the purchase price or mortgage. The Claimant sought a declaration that the property was held by the parties as tenants in common in equal shares and an order for sale. At first instance the judge dismissed the Claimant's claim.
The Claimant appealed.

Morris J found that although the Defendant had not formally pleaded a claim for rectification or rescission, there was no requirement for a formal claim for such to be made for the court to make an order for the same. It was only necessary for a vitiating factor relating to the express declaration of trust to be asserted, which the Defendant had done. Whilst the Defendant had not provided a properly particularised counterclaim impeaching the express declaration on the basis of mistake, the judge was entitled to exercise his discretion to allow the Defendant's defence to be considered. Morris J found that this approach was just on the facts of the case and the Claimant was not prejudiced by the lack of a formally pleaded counterclaim. 

Morris J held that at the time of purchase the parties had agreed joint legal ownership but had reached no agreement as to beneficial ownership. The correct approach therefore was to reflect this by rectification, deleting the express declaration of trust from the TR1. In the absence of an express declaration of trust it was for the court to decide the parties' beneficial interest based on an implied trust. The judge at first instance had found that, on the basis of the parties' common intention constructive trust, the Claimant had no beneficial interest and the Defendant was the sole beneficial owner. The Claimant's appeal was dismissed.


Kleinhentz v Harrison and another [2020] EWHC 3439 (Ch)

The Claimant and First Defendant lived together for most of the period between 1990 and 2011. The Claimant alleged that they had been in a relationship together, which the First Defendant denied. In 2005 the First Defendant purchased a house in his sole name using money provided by his father. When he asked the Claimant to leave in 2011, the Claimant asserted a beneficial interest in the property. The parties subsequently entered into a written agreement under which, subject to certain conditions being met, the Claimant would receive a payment of £250,000 and withdraw his claim of a beneficial interest. It also provided for the First Defendant to have in place a Will leaving a gift of at least £250,000 to the Claimant which was not subject to conditions. No money was paid under the agreement. The property was subsequently sold and part of the proceeds went to purchase a property in the name of the Second Defendant (who by that time was in a civil partnership with the First Defendant). The Claimant alleged that the agreement had been varied and the First Defendant should have paid him £250,000 when the property was sold.

Robin Vos, sitting as a Deputy High Court Judge, found that the parties had been in a long-term committed relationship from 1990 to sometime between 2005-2008. After that they were good friends. It could not be inferred from the parties' conduct that the Claimant should have a beneficial interest in the properties purchased by the First Defendant. The written agreement in 2011 was a valid binding agreement and remained so, including the term regarding the First Defendant's will.  However, the requirement for the First Defendant to pay the Claimant a lump sum of £250,000 was conditional upon the First Defendant receiving sufficient funds from his father after the date of the agreement to do so. The proceeds of sale of the property did not satisfy the condition because although the funds to purchase the property had come from the First Defendant's father they were received prior to the 2011 agreement. The agreement had not been subsequently varied. The Claimant's claims were dismissed.


Oberman v Collins and another [2020] EWHC 3533 (Ch)

The Claimant and First Defendant were in a long term relationship between 1995 and 2015. The Second Defendant was a company in which both parties were shareholders. Over the course of their relationship, the Claimant and First Defendant had built up a portfolio of properties which were held in a mixture of their sole and joint names and in the name of the company. The ownership of the properties was often dependent upon financial advice. The Claimant sought (i) a declaration that she was entitled to 50% of a number of properties held by the Defendants either under a common intention constructive trust or a partnership and (ii) relief under sections 994 and 996 of the Companies Act 2006 on the grounds of unfair prejudice. Tom Leech QC, sitting as a Judge of the Chancery Division, held that all of the properties, regardless of legal title, formed part of a single portfolio in the common ownership of the parties. There was an express agreement between the parties that it had been their common intention that the portfolio would be held jointly and equally and the Claimant had relied on that to her detriment (making financial contributions and working unpaid). The common intention doctrine could apply to a fluctuating portfolio of properties provided the requirement of a valid trust were satisfied. If that was wrong, then a common intention constructive trust could be established by inferring that the parties intended to acquire that property in equal shares from their express agreement about the portfolio and their subsequent conduct in the use of rents and sale proceeds. There is no rule that common intention trusts arise only in the domestic context although it is more difficult to establish these trusts in a commercial context.

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