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Financial Remedy Update, June 2021

Sue Brookes and Rose-Marie Drury, Principal Associates at Mills and Reeve, consider the important news and case law relating to financial remedies and divorce during May 2021.

Sue Brookes and Rose-Marie Drury, Principal Associates, Mills and Reeve

As usual this month's update is divided into two sections.

A. News update

New President's guidance on jurisdiction of Family Court and allocation of cases

Sir Andrew McFarlane has issued new guidance on the 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.  The guidance entered into force on 24 May 2021. The changes reflect and supplement the changes implemented by the Family Court (Composition and Distribution of Business) (Amendment) Rules 2021.

Applications for financial relief following an overseas divorce or an overseas dissolution should be issued in the applicant's local Financial Remedy Court zone hub and must never be issued in the High Court. If the case is complex or of very high value and the applicant considers it should be allocated to a judge of High Court level, the applicant must file an allocation questionnaire FRC3 (modified to reflect the overseas divorce or dissolution) and a written request together with the application. If the applicant is dissatisfied with the allocation, they may request a hearing.  Following the decision in Potanina v Potanin [2021] EWCA Civ 702,  the President's guidance clarifies how the gatekeeper should approach the question of whether or not to list a hearing on notice for the permission application.

The guidance also clarifies allocation in existing or concluded financial remedy cases.

Updated domestic abuse factsheets following Domestic Abuse Act 2021 being made

The government has updated its factsheets about the different provisions of the Domestic Abuse Act 2021, which received Royal Assent on 29 April 2021. A Domestic Abuse Act 2021: overarching factsheet has also been added to the collection, detailing the background to the Act, the changes it introduces and how those measures will be applied across the UK.

HMCTS publishes guidance on its Scheduling and Listing Project

HMCTS has published guidance on its Scheduling and Listing Project. A new tool, "ListAssist", will be rolled out in 2022 and will provide a single online tool for listing hearings across criminal, civil, family and tribunal jurisdictions in England and Wales. A pilot began in Oxford County Court in January 2021.

Practice Direction update

At the beginning of May 2021, Sir Andrew McFarlane P issued Practice Direction update: No. 4 of 2021. Amendments have been made to:

• PD 30A (Appeals) - consequential amendments in light of the change of route of appeal from decisions of District Judges in the Principal Registry of the Family Division in financial remedy proceedings, which change is made in the Family Court (Composition and Distribution of Business) (Amendment) Rules 2021.  In force from 24 May 2021.

• Pilot PD 36U (service and notification of applications and orders under Part 4 of the Family Law Act 1996) - pilot PD which temporarily amends Part 10 FPR 2010  and provides for courts to direct another method of service, other than personal service, for applications and orders made under Part 4 FLA 1996. This pilot PD was due to end on 3 May 2021 but has now been extended to end on 30 September 2021.

• PD 41B (proceedings by electronic means: procedure for an application for a consent order for a financial remedy in connection with divorce proceedings) -  the amendment to this PD permanently mandates the use of the online system by applicants' legal representatives. In force from 31 May 2021. 

Fees update

HM Courts and Tribunals Service has published a list of revised fees for the Family and Civil Courts which came into force on 18 May 2021.

Retirement of Mr Justice Cohen

Mr Justice Cohen retired from the High Court (Family Division) with effect from 9 May 2021, but will be authorised to act as Judge of the High Court up to and including  2 January 2024 and will therefore continue to sit effectively full time.

Resolution survey highlights one in four family lawyers have contemplated leaving the profession since lockdown

A quarter of family justice professionals are actively considering quitting the profession as the toll of lockdown on their mental health becomes clear, Resolution revealed.  Over 1,200 family law practitioners were surveyed for the report which was published during Resolution's National Conference. Worryingly, of those who are considering leaving the profession, almost half (45 per cent) are junior practitioners highlighting a significant risk of a generational 'brain drain' of young talent leaving the sector.

A combination of long working hours, heavy workloads, client expectations and working in isolation has stretched practitioners to the limit, with more than half saying that they had considered leaving the profession at some point in the last three years because of concerns about their wellbeing.

It comes after family practitioners helped to successfully cut backlogs in the family court by sitting more days than ever before during the pandemic. Although this demonstrates practitioners' dedication to supporting clients and commitment to family justice, it does raise significant questions as to whether this additional workload is sustainable or desirable particularly with almost 60% of practitioners reporting that they worked an extra eight hours during the week and 88% needed to work during annual leave. 

Domestic Abuse Bill receives Royal Assent 

On 29 April 2021, four years after it was included in the Queen's Speech, the Domestic Abuse Bill received Royal Assent.  For the first time there will be a wide-ranging legal definition of domestic abuse which will incorporate a range of abuses beyond physical violence, including emotional, coercive or controlling behaviour, and economic abuse.  Also included are new protections and support for victims ensuring that abusers will no longer be allowed to directly cross-examine their victims in the family and civil courts, and giving victims better access to special measures in the courtroom to help prevent intimidation, such as protective screens and giving evidence via video link.

Police have also been given new powers including Domestic Abuse Protection Notices which will provide victims with immediate protection from abusers while courts will be able to hand out new Domestic Abuse Protection Orders to help prevent offending by forcing perpetrators to take steps to change their behaviour, including seeking mental health support or drug and alcohol rehabilitation.

B. Case law update

Garcia v Garcia [2021] EWHC 1175 (QB)

An issue arose as to service of an application and notice of hearing by the Claimant to stop him being evicted by the Defendant from a house at Handen Road, for protection under Part IV Family Law Act 1996 and for an occupation Order pursuant to s33 Family Law Act 1996.

The Claimant had emailed the court with the Original Court Papers on 19 April 2021. They consisted of some 22 pages. The matter came before Martin Spencer J on 19 April 2021 who refused the application on a without notice basis and ordered that the Defendant should be given 48 hours' notice of the application.

The matter returned on 23 April 2021. By email that day the Claimant provided to the court a witness statement, a screenshot of what was said to be a text message sent to the Defendant's daughter, a certificate of service confirming service by first class post and a certificate of posting from the Post Office recording the posting on 20 April of a large letter to the building number and postcode matching the house at Handen Road. The Defendant did not attend the hearing. Martin Spencer J made an order requiring the Defendant to permit the Claimant to return to the house at Handen Road and recording that the Defendant had been served by text and post with notice of the application. 

The Defendant then applied to discharge the Order on the basis that she had not seen any text nor received the documents by post. With her application was a statement which included a photograph of an envelope which the Post Office had delivered to her on 21 April. Inside was a fashion magazine which she said was all that was in the envelope. She alleged the Defendant had deliberately not served the papers on her solicitors and had sent the magazine via the Post Office to her. Further she alleged that the Claimant was not homeless and had misled the court.

The matter came before Fordham J at remote hearing. Fordham J invited the Defendant's solicitor in the course of the hearing to weigh the 22 pages comprising the Original Court Papers and the magazine. The magazine matched the weight of the item posted by the Claimant on the certificate of posting whereas the Original Court documents fell far short of the weight posted. Fordham J concluded that the Claimant had misled the court and the Defendant had not been served with the papers by post. Fordham J was further satisfied that the Claimant had misled the court that he was continuing to sleep in his car.

The mandatory orders were discharged.

Potanina v Potanin [2021] EWCA Civ 702

H and W met as teenagers and were married in Russia in 1983 where they then lived throughout their married life. During the course of the marriage the Husband accumulated wealth estimated to amount to £20 billion. Much of the Husband's wealth was held in various trusts and corporate vehicles of which the Husband was the ultimate beneficial owner.

The Husband claimed the parties separated in 2007 and the Wife 2013.

In 2007 the Husband transferred the sum of $71 million to the Wife and later a further $5.1 million. There was a dispute as to the actual value of the settlement which centred on the relevant date at which to apply exchange rates to the conversion from roubles to dollars. 

A divorce was pronounced in Russia in 2014. Between 2014 and 2018 there were various ongoing proceedings in Russia between the parties, in Cyprus and the United States. Ultimately the outcome of the Russian proceedings was that the Wife was unable to obtain half of the assets held beneficially by the Husband and she was not entitled to maintenance.

In 2014 the Wife obtained a UK investor visa and bought a property in London. Her case was that since the beginning of 2917 London had been her permanent home. The Wife applied for leave to pursue a Part III application under the Matrimonial Family and Proceedings Act 1984.

In January 2019 the judge granted the Wife ex parte leave to apply for financial relief pursuant to Part III. The Husband applied to set aside the grant of leave on the grounds that the judge had been misled in respect of the facts, issues of Russian law and the applicable principles of English law. In October 2019 the judge set aside the leave on the basis that he had been misled at the ex parte leave hearing and refused the Wife's application for permission to proceed with a Part III application. The Wife appealed.

The Court of Appeal allowed the Wife's appeal on the basis that the judge's analysis at the set aside hearing had been tainted by the procedure adopted which was too elaborate and lengthy but also led to the making of serious adverse findings against the Wife without the benefit or oral evidence or expert evidence. The alleged deficits in the Wife's leave application could not be said to have objectively misled the judge or to have been sufficiently material to the issues informing the grant of leave so as to amount to a compelling reason to set aside the permission granted at the ex parte hearing.  Leave having been granted the matter would proceed to trial in order to determine what if any order should be made pursuant to section 17, Part III.

Giving the lead judgement for the Court of Appeal King LJ (with whom David Richards LJ and Moylan LJ agreed) set out the proper approach to applications made under Part III.

Ex parte applications

FPR r8.25(1) was directive as was 8.25(2) the application must be made without notice and the court must determine it without notice. This reflected that the application for leave was only a filter mechanism designed to prevent wholly unmeritorious applications. The rules had been changed in 2017 to reflect the view expressed by Munby LJ in Traversa v Freddi that the application for leave must be made ex parte. 

The 2017 version of FPR 8.25 also allows by 8.25(3) the court to direct that the application for leave be heard on notice if the court considers that to be appropriate. In a complex case it is likely to be appropriate. However, regardless of whether the application was ex parte or inter partes the character of the determination of applications for leave remained summary.

The approach to applications for leave

The proper approach to applications was set out in the Supreme Court decision in Agbaje namely that:

i) The test is not high for the grant of leave but there must be a 'solid' case to be tried;

ii) The power to set aside may only be exercised where there is some compelling reason to do so. In practice it will only be exercised where a decisive authority is overlooked or the court has been misled;

iii) Unless the applicant can deliver a 'knock-out' blow, an application to set aside should be adjourned to be heard with the substantive application.

An application to set aside should not be used an opportunity to explore matters to be heard at trial. The task of the court on a set aside was not to conduct an appeal from the granting of leave in the form of a rehearing but to decide whether there was a 'knock-out blow' to the grant of leave such as a decisive authority being overlooked or the court being misled.

In the present case the Husband's claim that the court had been misled which required a jigsaw of information pieced over thousands of pages and analysed over a number of days was not a knock-out blow and the application to set aside should have been heard with the substantive application. In effect the hearing to deal with set aside had become an examination as to whether the s16 part of the application was satisfied. The judge was asked effectively to make significant findings of fact and to reach conclusions without the benefit of oral evidence which would have been available to him had the set aside been heard at the final hearing.

Set aside on allegations of misleading the court

An application to set aside on the basis that the judge had been misled should include consideration of the following:

i) The more complex the case, the greater the detail that will be required in order to achieve the fair disclosure necessary on any ex parte application;

ii) Not every misrepresentation will justify the setting aside of leave. The matters said to be misleading have to be either individually or collectively misleading and sufficiently material to justify setting aside the leave;

iii) The courts are required to keep a sense of proportion;

iv) If it can be said objectively that the matters alleged did not mislead or are not sufficiently material to the issues informing the grant of leave then leave will not be set aside.

The Maintenance Regulations

As the proceedings had been issued before 11.00pm on 31 December 2020 the Maintenance Regulations would continue to apply to these proceedings. However there would be few cases outstanding to which these would apply and future Part III application would have to be considered without reference to these Regulations.

Future law reform

King LJ concluded by highlighting that this case demonstrated a number of the complexities which arise in Part III applications and that those for whom Part III proceedings were designed would benefit from having access to a straightforward and cohesive procedure. Looking more broadly the complexities and challenges were an area which would benefit from consideration by the Law Commission

AJC v PJP [2021] EWFC B25

The Wife was 53 and the Husband was 57. The marriage had been of reasonable length and the parties separated in November 2011. Decree absolute and a final financial order (by consent) were made in November 2010. There were two children of the family, a boy who would be 18 in September and a girl who was 14 1/2. Since September 2015 they had been living relatively equal amounts of time with both parents.

The 2012 order provided for the Wife to receive 69% of the proceeds of sale of the family home, a pension share and the Husband to retain his business interests. There was a nominal spousal maintenance order until the Husband reached the age of 65.

In 2015 the Wife wanted the Husband to pay all of the children's school fees. After a three day final hearing the judge determined that the family could not afford private school fees and directed the children move into the state sector. Shortly after the Wife's father agreed to pay half the fees on the basis the Husband paid the other half.

The Wife was a trained pilot and in 2019 she was made redundant. She received a redundancy payment which she put in the name of her daughter although accepted she was using the funds to discharge her legal fees in the proceedings. She subsequently secured other employment as a pilot earning £65,000 per annum but this came to an end at the start of the pandemic. Once the pandemic ended she hoped to be employed again. The Wife applied to vary her nominal spousal maintenance order.

The Wife was receiving universal credit, child benefit and child support totalling £2,000 per month as against an income need of about £3,500 pcm (£42,000 per annum net of tax which was equivalent to a gross income of £60,000).

The Husband had worked in car sale and related work in the motor industry. The figure for his income to April 2020 was a monthly net of £7,900 from which he paid child support of £900 and school fees of £1,900. He indicated his income had reduced as a result of the pandemic. His living expenses, as disclosed to the court, left him with no funds remaining.

The Wife's capital position was that she owned a three bedroom property worth approximately £480,000 with a mortgage of £117,000. She had about £5,000 left from the redundancy payment. She had also received a 35% share of her father's estate following his death in November 2019. A good amount of the estate consisted of a property in Wales which was empty and unlet but could produce a rental income of £600 pcm. The Wife claimed her sister would not agree to sell it.

The Husband had a property bought in 2016 for approximately the same value as the Wife's but he had a large mortgage, an overdrawn bank account and no savings. He indicated that money in his business was earmarked for January 2021 tax. He had raised funds from one business to purchase another.

Judge David Hodson dismissed the Wife's application at a first hearing using FPR rule 9.20(1) which states that under the fast-track procedure 'If the court is able to determine the application at the first hearing, it must do so unless it considers that there are good reasons not to do so' on the basis that not to do so, with the high risk that this would be the outcome of the case after extensive disclosure and costs would be unfair to both parties and a derogation of reasonable court management.

He commented that the nature of an application to vary a nominal order to a substantive order was intrinsically different to any other variation application:

1) Such applications should only be granted if there was a significant change in circumstances not just a 20% increase or decrease in the income of either party. 

2) It was not budgeted for by either party in the planning of their life which was relevant in circumstances where parties were encouraged to move on.

3) The mere fact it was not clearly specific when the nominal would be converted into the substantial only added to the uncertainty. Comparing the position with a Mesher order which fully set out the terms a nominal order did not do so which was wholly unsatisfactory for both parties.

The Judge was satisfied that in circumstances where the youngest child was 14, the Wife had been fully self-sufficient at the time of the divorce and subsequently and the change in circumstances was the economic impact of the pandemic it was not appropriate or reasonable to convert the nominal spousal maintenance order into a substantive order. He commented that where misfortune or unexpected developments had nothing to do with the marriage then it could not be expected for one spouse to be responsible to the other.

HW v WW (Covid 19 pandemic: set aside a financial remedy consent order) [2021] EWFC B20 (26 November 2021)

This case addresses the question of whether the impact of the Covid 19 pandemic on the value of a key asset is sufficient reason to set aside a financial consent order.

The consent order was made on 12 March 2020. It included an order that the husband (HW) must pay the wife (W) a series of lump sums totalling £1million, with the first sum of £750,000 payable by 10 June 2020. HW did not pay the first lump sum and W applied to enforce the order on 20 October 2020.

H then immediately applied to set aside the consent order in its entirety, on the basis that "circumstances that were unforeseen and unforeseeable have significantly changed the assumptions upon which the Order was made" and he "cannot now meet the terms of the Order". He relied upon the alleged substantial change in the value of the shares in the family business, flowing from the impact of the global pandemic.

During the hearing, the judge (HHJ Kloss) also raised the question of the court's residual powers pursuant to the "liberty to apply" provision or the "Thwaite" jurisdiction where an order remains executory (Thwaite v Thwaite [1981] 2 All ER 789). However, HW did not pursue those claims and focussed solely on his application to set aside.

This was not a case where there could be a variation application. If the court did not set aside the order, the issue was purely one of enforcement.
If the court set aside the order, the case would start afresh. The lump sums could not be set aside in isolation, as the rest of the order was interdependent on them.

HW ran the family business which was owned 51% by him and 49% by W, although she had no direct involvement in the company. The SJE accountant had valued the company within the original proceedings at £3.16million net and he assessed H's earning capacity, after W left the business, to be £555,000 gross per annum. He also assessed that H could raise c.£1.1m million by withdrawing surplus cash and borrowing against the business premises which were owned by the company.

The agreed settlement meant that W would receive 39.8% of the assets and 32.8% of the pensions, with spousal maintenance payable until receipt of the third lump sum and thereafter a clean break. This was a departure from equality after a long marriage, but she would be financially secure and able to meet her needs from her capital and whatever limited income she could earn herself. By contrast, H was wiped out of liquid assets and had to borrow to meet his own housing needs.

HHJ Kloss considered the cases of Barder v Barder (Caluori intervening) [1987] 2FLR 480, Cornick v Cornick [1994] 2FLR 530Myerson v Myerson (No.2) [2009] 2 FLR 147, DB v DLJ [2016] EWHC 324 (Fam) and FRB v DCA (No 3) [2020] EWHC 3696 (Fam)

Under the test set out in Barder, the following three areas of HW's evidence were important to his assessment:

• HW's state of mind when the order was agreed, which goes to whether the "event" was in fact foreseen or potentially foreseeable;

• the development of the economic impact of the event upon the company, which is relevant to determining whether the timing of the application to set aside was reasonable; and

• the current and future trading/borrowing position of the company, which is relevant when assessing how fundamental the impact of Covid has been upon him.

HHJ Kloss found that HW did not foresee any real impact of the pandemic upon him or the business, because he was not closely following the news at the time.

HW's communication with W in the months after the order was reasonable. If his intention had been to avoid the order, he would have applied to set aside much sooner than he did. Instead he waited to see what happened, which is not indicative of him trying to mislead W or the court at that stage. He would have been criticised if he had jumped the gun and applied too soon. Eight months after the order was right at the outside, but still within, the acceptable window of opportunity. His application did not therefore fail on the question of timing, either under the second or third Barder conditions.

However, it became clear from HW's oral evidence that he had applied to the bank for borrowing and that a 5 year forecast had been produced for that purpose, all of which he had failed to disclose to W or the court. The picture presented to the bank was very different from the picture presented to the court within these proceedings.

The judge found that, whilst HW was not deliberately misrepresenting his position and he had not realised the need to disclose the document prior to the hearing, HW was presenting his case partially and the judge therefore had to exercise due caution in respect of HW's predictions for the future of the business.

HHJ Kloss confirms that fairness does not come into the judge's considerations on an application to set-aside, save "in regard to the limited lifebelt that Barder provides". He had sympathy for HW, but sympathy and fairness do not form part of the test to be applied.

The existence of the pandemic was not a new event and it does not, in itself, invalidate the assumption upon which the order was based. However, the judge also had to ask himself whether, as at the date of the settlement, HW could reasonably have foreseen (even if he did not actually foresee) a risk that the pandemic might have a significant impact upon the trading position of the company. It is not enough if he could have foreseen the pandemic itself. The impact on the company is key (cause and effect).

It was not however necessary, as HW had argued, for him to be able to foresee the full extent of the pandemic or its impact, only that there was a risk of a significant impact. HW had argued that, when assessing the impact of the event, the court must compare the figures for the business now with the figures in the previous SJE report. There was no updating expert evidence in this case. However, an expert report is not a hard metric and it is only ever a "broad guide". The judge has to look to the long term on a Barder event. It is not the same as an FDR or final hearing where the court looks at the values as at the dates of the hearing and any fairly imminent developments.

The judge rejected the assertions made by W that the Covid pandemic was no more than natural processes of price fluctuation which fell within the first category of Cornick and the case of Myerson. This pandemic has been an extraordinary event, different in nature and scale to any similar world event in the lifetime of the parties.

In principle, both Myerson and Cornick can therefore be distinguished and the Covid pandemic can open the door to a successful claim.

However, in this case HHJ Kloss concluded, not without some hesitation, that the risk of significant impact to this company was reasonably foreseeable in light of what was happening in the world in the immediate lead up to the settlement being agreed in March 2020.

Furthermore, the impact had not been fundamental enough to meet the Barder test on the evidence available. There was no doubt that the company had suffered as a result of the pandemic and the profits which had been envisaged would not be achievable, at least in the short to medium term. However, the Barder test is set very high. HW had chosen the path of the greatest personal risk, which he hoped to generate the greatest personal reward.

The judge must look at the assertions of the party seeking to set aside the order with a healthy degree of scepticism. Taking the words from the quoted authorities "fundamental", "dramatic", "few and far between", this underlines the exceptionality of the lifebelt and the limited number of cases in which a Barder claim will succeed.

Although HW's application failed, HHJ Kloss ends his judgment with some consideration of potential ways to resolve the matter between the parties, taking into account the financial difficulties and the inevitable costs of further litigation. He encouraged the parties to think about finding a pragmatic and consensual way forward if they could.

Barclay v Barclay [2021] EWFC 40 (05 May 2021)

Cohen J had given judgment within the financial remedy proceedings on 30 March 2021. The proceedings had been heard in private but they were attended by a number of accredited media representatives pursuant to FPR r27.11(2)(f).

The judge had made an interim reporting restrictions order (RRO) which remained in place. The media had referred the judge to the order of Mostyn J in Appleton v Gallagher & others [2015] EWHC 2689 (Fam), in the hope of also being able to report information which did not refer to "any of the parties' financial information whether of a personal or business nature …" However, the judge had not allowed anything more than the fact that the hearing was taking place, the parties' names and their legal representatives to avoid taking time in what was already a tight timetable to argue over what was or was not the parties' financial information.

He had indicated that, if there were specific details the media wanted to publish, he would hear an application in respect of that material. No such application was made during the trial.
He now had to determine if he should publish any or all of his judgment and if the RRO should remain in place.

Both parties agreed the award and the open position of each should be made public and it is included within this judgment. They could not agree as to whether the original judgment should be made public.

The husband (H) argued the starting point is privacy. Despite being the part-owner of a newspaper, he is not a public figure, his behaviour did not justify publication, the judgment was very personal and he had genuine concerns for the members of his family who were not party to the proceedings.

W wanted the judgment to be released, arguing her right of freedom of expression and that the public have the right to know the way H had behaved. She said his behaviour had removed his right to privacy.

The media argued that H is a public and political figure and it is important for the public to know the extent to which he had been criticised in the judgment. They also wanted the whole judgment to be published, so the public can understand how the court reached its conclusions.

The parties' six children expressed concerns about their privacy being invaded. Cohen J considered the relevant legal principles summarised by Baker J (as he then was), in XW v XH (No.2) [2018] EWFC 44.

The starting point is that family matters are private and the potential harm to a family if the specific details are made public will often outweigh the benefits to the public. However, what happens in family courts is a matter of public concern and open justice is part of the DNA of our constitution. There is a clear tension which is normally resolved by anonymised judgments.

The fact that cases heard in the Court of Appeal are heard in public does not mean the details of all cases in the Family Court should be made open. Those attending hearings within the Family Court, expect them to be private.

In rare cases, litigation misconduct will justify a party losing any protection from publicity, as it did in Lykiardopulo v Lykiardopulo [2010] EWCA Civ 1315, which was a case of forgery and plain perjury.

Cohen J was attracted to the idea of a summary of the judgment being made public. Although he was not aware of a case where this has been done, it is a possible solution. As per Lykiardopulo, the judge may release the judgment or a summary to the press (emphasis added). He would therefore have been minded to take that approach, although neither party wanted him to, but he did not have to release a separate summary because he was able to include all of the relevant details in this judgment.

H's behaviour did not get near the level in Lykiardopulo. In any event, it is not an all or nothing approach by the court. A litigant may expose himself to publication of his wrongful acts, without losing the protection of confidentiality of other matters.

The RRO was to remain in pace and the extent of the publication would be limited to the details contained in this judgment, which properly and proportionately satisfies the public interest.