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Financial Remedy Update, March 2021

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

Naomi Shelton, Associate, Mills and Reeve LLP

As usual, the monthly update is split into two parts

A.  News Update

President's confirmation that the Financial Remedies Courts are formally part of the Family Court as pilot project comes to an end

On 24 February 2021, the President of the Family Division issued an announcement confirming the completion of the pilot project for the Financial Remedies Court ("FRCs") and confirmed that they are now formally part of the Family Court. 

The FRCs will deal with all financial remedy applications, including those under Schedule 1 to the Children Act 1989 and Part III of the Matrimonial and Family Proceedings Act 1984, as well as all related enforcement applications. McFarlane P hopes that in due course legislation will be made that permits FRCs to hear applications under the Trusts of Land and Appointment of Trustees Act 1996 and the Inheritance (Provision for Family Dependants) Act 1975.

Mr Justice Mostyn and HHJ Hess have published a Note for all financial remedies practitioners addressing procedure and significant changes to way in which applications to the FRCs should be brought.    

Family Procedure (Amendment) Rules 2021

The Family Procedure (Amendment) Rules 2021, which come into force on 6 April 2021, amend the Family Procedure Rules 2010 as follows:

• Rule 3 amends rule 6.43 of the FPR which makes provision for cases where service is to be effected on a respondent outside of the United Kingdom.

• Rule 4 inserts a new rule 36.3 into the FPR to enable provisions of the FPR to be modified or disapplied by Practice Directions to address issues for the work of the courts arising from a public emergency.

Family Division's Transparency Review expected to be published in Summer 2021

The Transparency Review which is currently being undertaken by the President of the Family Division is expected to be published later this year despite unavoidable delays to the timetable envisaged on its launch in May 2019 by the President.

The Transparency Review is set to address the current arrangements for media/public access and reporting in the Family Court.  For more details about the Transparency Review, click here.

Call on the Government to include a statutory duty on local authorities to fund community-based services in the Domestic Abuse Bill.

In a joint statement from the Children's Commissioner, the Victims' Commissioner and the Domestic Abuse Commissioner, it was stated:

'It is vital that the government takes this once in a generation opportunity to ensure that all victims of domestic abuse – including the children living in these abusive households – have access to local protection and support by including community-based services in the Domestic Abuse Bill's statutory duty.'

The Bill is currently in the House of Lords at report stage prior to its third reading.

Home Affairs Committee investigates domestic abuse during Covid-19 pandemic

On 3 February 2021, the Home Affairs Committee held an evidence session to examine the prevalence of domestic abuse during the Covid-19 pandemic and the adequacy of the Government's and police response.  It investigated the further challenges faced by support services in providing financial and other support to victims during lockdown.

To watch the session, click here.

Legal Services Board data demonstrates fluctuating demand for family law services during then Covid-19 pandemic

The data reveals divorce applications received by HM Courts & Tribunals Service in November 2020 increased by 16 per cent to 11,700 compared to 10,000 in November 2019. However, there were significant fluctuations within the 12 months. Between April 2020 and July 2020 applications increased by 93 per cent but dipped in August 2020 to below 2019 levels. This summer peak may indicate a reluctance to issue proceedings during the first national lockdown with a subsequent spike showing that pent-up need. Applications increased again by 46 per cent between August and October 2020.

Referrals to the National Centre for Domestic Violence increased by 13 per cent to 7,500 in December 2020 compared to 6,700 in December 2019. However, there were significant fluctuations within the 12 months. There was a 23 per cent increase between April 2020 and July 2020, followed by a downward trend between August and November 2020.

Privy Council hears appeal concerning same-sex marriage

The Judicial Committee for the Privy Council has reserved judgment in an appeal brought by the Bermudan Government as to the validity of same-sex marriage in the British Overseas Territory. 

For an article concerning the case, click here.

Unregulated accommodation banned for vulnerable children under 16

The Government has announced that children in care under 16 will no longer be allowed to be accommodated in unregulated independent or semi-independent placements, helping to ensure the most vulnerable are cared for in settings that best meet their needs. Regulations have been laid in Parliament for the ban to come into force in September, as part of the Government's response to its consultation last year aimed at ensuring the highest quality provision for all children and young people in care.
For comment by the Children's Commissioner for England, calling for the ban to be extended to all under-18s, click here.

The Law Commission consults on proposals for reform to laws around intimate image abuse proposed to better protect victims

Proposals to improve protections for victims whose intimate images are taken or shared without their consent have been published by the Law Commission of England and Wales. The proposals include:

• An expansion of the types of behaviours outlawed by existing criminal laws on taking and sharing intimate images without consent to include 'downblousing' and sharing altered intimate images, such as deepfakes.

• Criminalising threats to share intimate images (including other forms of 'sextortion').

• Automatic anonymity for all victims of intimate image abuse.

• A new framework of offences better focused on this form of criminal conduct and the harm it causes.

The Law Commission is consulting on these proposals and wants to hear from a range of stakeholders including victims, experts and lawyers. The consultation period will close on 27 May 2021, following which, the Law Commission will use the responses to help develop final recommendations for reform.

To find out more about the project and to read a summary or to read the full report, click here.

B. Case Law Update

Derhalli v Derhalli [2021] EWCA Civ 112, 2 February 2021

This was an unsuccessful second appeal of the Husband ("H") in possession proceedings which depended upon the proper interpretation of a financial remedy consent order.

The consent order provided for the former matrimonial home, where the wife ("W") and the children were living, to be sold. It was expected to sell swiftly but given the property market slowing down following the Brexit referendum in June 2016 for an asking price of around £7 million, it did not sell until March 2019 for a sum of £5.9 million.

The FMH was in H's sole name. W had claimed no beneficial interest in it. The consent order made no provision as to the basis of occupation of the property pending its sale, although W had agreed to remove the protective notices registered against the property in her favour.  W refused to vacate the property, in 2017, H issued County Court possession proceedings. A declaration was made about the basis of W's continued occupation, effectively requiring her to pay rent to H until she vacated the FMH. On appeal, the judge set aside the declaration, and held that a true interpretation of the consent order was that it permitted W to live rent-free until sale, requiring her only to pay the outgoings. H appealed.

The Court of Appeal dismissed H's appeal, agreeing that a reasonable reader of the consent order, with the parties' background knowledge, would conclude that it was their intention for W to occupy the FMH rent-free pending sale. It noted that the principles of construction for a commercial contract were applicable to the financial remedy consent order to determine W's rights of occupation (Besharova v Berezovsky [2016] EWCA Civ 161), albeit that a financial remedy consent order is not a contract (MacLeod v MacLeod [2008] UKPC 64). The court emphasised its judgment was based on the terms the consent order, and that the case set no precedent.

However, King LJ observed that while most couples were unlikely to engage in protracted litigation about what was ultimately an "obvious proper interpretation of the Order", it may be wise for divorcing couples to set out the terms of a spouse's occupation of the FMH pending sale. Further, in King LJ's view, H's application to the County Court for possession was inappropriate. Disputes about the interpretation of a financial remedy order on divorce should be put to the Financial Remedy Court or the Family Division of the High Court. H should have applied to the Family Court for enforcement or variation of the consent order. However, Asplin and Arnold LJJ reserved opinion on whether it was appropriate for H to bring County Court possession proceedings, as the Court had not heard argument on the issue.

WX v HX (treatment of matrimonial and non-matrimonial property) [2021] EWHC 241, 10 February 2021

This case concerned an application by a wife ("W"), WX, for financial remedy against her husband ("H"), HX.   The couple had been married for 33 years. H was a successful banker and W's family had made its fortune in business via previous generations. In financial remedy proceedings, Roberts J calculated the parties' assets were around £54 million.  An additional $50 million was held in an offshore trust for which the parties' three adult children were the principal beneficiaries. H and W agreed these funds should be excluded from the assets to be distributed.

The £54 million included the parties' London home, which they jointly owned, and a home in Oxfordshire held by a family trust established by H, of which he was the life tenant. It also included funds inherited by W, £5 million in her sole name and £9 million in trusts established by her family. During the marriage, these funds remained separate from the matrimonial assets and were treated as W's family money. W received occasional capital distributions from the trusts and an income that she used for personal expenditure. For over 16 years, H managed the trust monies for her.

In determining the extent of the matrimonial assets to be shared between the parties, Roberts J rejected H's arguments that:

• The full value of the family's Oxfordshire home (£10.3 million) should not be attributed to him, because he occupied it as a life tenant. The reality was that H would retain the full benefit of the property into the future.

• W's trust monies had been "matrimonialised" and H's investment management had enhanced their value. Roberts J found the monies had not acquired a matrimonial character because H had managed them, and there was insufficient evidence to demonstrate his activities had produced a measurable uplift in their value.

Roberts J ordered an equal division of the matrimonial assets, giving each party around £20 million on a clean break basis. The judge found that both parties had made an equal and significant contribution to the marriage. In addition, W retained her ring-fenced non-matrimonial assets of £14 million.

AG v VD [2021] EWFC 9, 4 February 2021

In this case, the couple were from Russia and had been married for eight years. At the time of the judgment, the wife ("W") was 51 and the husband ("H") was 56.   Both had children from previous marriages and the youngest child was W's daughter aged 17.  H was a wealthy businessman but placed most of his assets in a foundation and held little in his own name. The parties moved to England in 2010, although H spent long periods in Russia on business. Following divorce and financial proceedings issued in Russia in 2017, W received a half share in the matrimonial home in London, worth around £2.5 million, and no maintenance. In line with Russian practice, no account was taken of assets not owned by the parties, so H's business interests and foundation assets were not considered by the court.

W made a subsequent application to the English Court under Part III of the Matrimonial and Family Proceedings Act 1984.  The Court was to consider case law including Agbaje v Agbaje [2010] UKSC 13 and Zimina v Zimin [2017] EWCA 1429 which set out principles that apply to "the alleviation of the adverse consequences of no, or no adequate, financial provision being made by a foreign court in a situation where there were substantial connections with England" [48].  The Court concluded that there was a "substantial connection with England" being a greater connection with Russia and the Russian order did not provide adequately for the needs of W and her 17 year-old daughter.  Despite H arguing that it was a Russian case and that the English Court should not interfere, the Court disagreed and deemed it appropriate for an order to be made by the English Court [57].

Cohen J found that H had personal assets of £3 million and foundation assets to which he had access worth between £17 - £19 million. H also held business interests, the value of which Cohen J was unable to determine. Cohen J awarded W a housing fund of £3.4 million and a Duxbury lump sum of £2.06 million, based on her needs. He commented that the parties had lost all perspective on the case, arguing every point, and together spending over £2 million in costs. For example, W had continued to pursue a sharing claim, despite Cohen J indicating early in the proceedings that the case was likely to be determined by needs.

Harrington v Harrington [2020] EWFC 99, 2 February 2021

This case deal with the wife's ("W"'s) application to publish her final judgment ([2019] EWFC 85) in financial remedy proceedings which would identify the parties and a witness. DJ Hudd granted W's application.  At the time of the final hearing, the husband ("H") was an MP and had made findings about his attitude to providing disclosure and discrepancies in his disclosure.  It was of public interest to know that public figures are subject to the same treatment as other citizens. While H was no longer an MP, he was at the time of the final hearing and throughout the substantive financial remedy proceedings. Given the extent to which his affairs either were already or ought to have been in the public domain, the interference with his Article 8 rights was not as substantial as it would be if he were a private individual.

DJ Hudd also declined to anonymise the identity of a solicitor witness (Mr Brook), who had given evidence voluntarily in a personal capacity as H's business partner and friend. While Mr Brook was not in public office and was not offering professional services to H in a commercial setting, he was also subject to high standards of probity being a regulated professional. In her judgment, DJ Hudd had expressed concerns about the probative value of Mr Brook's evidence. This was particularly serious given Mr Brook's professional status, such that there was a public interest in publication.

R v R [2021] EWHC 195 (Fam), 18 January 2021

In this case, the Husband ("H") sought interim provision of £21,703.50 per month, in addition to £23,500 per month for rental accommodation, to meet his living expenses. Judge Cusworth listed the raft of other applications before him and also highlighted there was an ongoing challenge to jurisdiction in the proceedings which was being litigated in "State A".

In respect of H's application for interim maintenance in relation to rental provision and for general living expenses, the Judge noted that H "has a further series of items in his budget which are of necessity extremely curtailed for the moment by the current national lock-down in face of the pandemic.  He is seeking £5,000 pcm for a combination of restaurant, theatre, cinema and concert visits, use of a gym and holidays and weekend breaks… None of this is currently required, and whilst some provision may become appropriate in due course, it is quite impossible to anticipate with precision, when that might be." [24] H also sought a full time live in nanny and domestic help which the judge stated may not be applicable in the current national circumstances.

The Wife ("W") had offered H £5,500 per month in interim provision based on her calculation that was the level of H's expenditure on the joint account before separation. Judge Cusworth eventually awarded H the sum of £9,000 per month in relation to his expenditure on the basis that money not expended during lockdown would accumulate and be available to supplement post-lockdown expenditure. In addition, Judge Cusworth ordered a rental allowance for H of £11,000 per month.

The Judge then turned his mind to the level of a legal services provision order that should be awarded to H.  At the date of the hearing on and since the parties separation in September 2020, near to £1.3 million had been incurred by the parties in legal costs.

W had offered to pay H £682,000 to cover his legal fees - such offer being put forward on the basis that an extendable Legal Charge would be placed on the family home in the sum of £1.5 million to cover both parties' legal costs to date. The Judge was concerned that W's proposed approach would diminish the value of capital assets in the UK which would then be available for distribution between the parties. Judge Cusworth ordered W to pay H £200,000 which was roughly equivalent to 50% of H's current solicitor's bills, plus an ongoing amount of £150,000 per month from February until June 2021 (£750,000 in total). Judge Cusworth considered that H's costs in relation to his first solicitor was a matter for H to resolve; he did however commented that given the complexity of the issues in the case, the overall costs of both parties was reasonable.

NB v MI [2021] EWHC 224 (Fam) 8 February 2021

This case dealt with an unsuccessful application for a declaration of non-recognition of marriage and a petition for nullity. The wife ("W") sought to argue, relying on two expert reports, that she had not had capacity to consent to marry. 

The High Court concluded that W had had capacity (though not wisdom) to consent and the marriage was therefore valid under English Law at its formation.  Although W did not understand the full legal and financial consequences of marriage or the differences between marriage under Islamic and UK law, the relatively low standard for capacity to marry was met by W at the relevant time. Mostyn J emphasised that "the wisdom of a marriage is irrelevant".