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Ancillary Relief Update (December 2008)

Joanna Grandfield highlights the latest key cases in ancillary relief

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Joanne Grandfield, Barrister, Mills & Reeve LLP

This update includes cases considering pre-marital agreements, the impact of non-disclosure on awards for ancillary relief, competing confiscation and ancillary relief proceedings and delayed receipt of lump sums before turning to points of practice.

NG v KR (pre-nuptial contract) [2008] EWHC 1532
Whilst not attracting as much press attention as Crossley (see Ancillary Relief Update (January 2008)), this decision of Baron J should be added to ancillary relief proceedings. 

The husband and wife, who were French and German and aged 39 and 36 respectively, married in England in 1998 and separated almost 8 years and two children later.  After proceedings before HHJ Collins, on cross applications for residence and the wife’s application for leave to remove, the children spent approximately two thirds of their time with the wife in Germany and one third of their time with the husband in England under an order for joint residence (reported under Re G (Children) [2007] EWCA 1497).  Another big money case, the wife was worth between £55m and £100m and earned £2.6m net p.a. The husband, an investment banker when the parties met, was an academic with projected future earnings of £35,000 p.a.

A pre-marital agreement was drawn up by the wife’s family solicitors in Germany in something of a rush.  The husband did not have time either to seek a proper translation of the document; or take independent legal advice as to its meaning and implications or properly consider the terms proposed, which prevented him from making any claims on the wife’s assets, income or estate in the event of provided no financial disclosure.  Whilst the agreement would have been binding in both France and Germany, it recorded the parties’ intention to live in London and provided for the law of their matrimonial residence could apply to the marriage. 

Whilst the obvious deficiencies in the agreement (contrast the circumstances here with the test set out in K v K (Ancillary Relief: prenuptial agreement) [2003] 1 FLR 120 and the judgement of Baron J in NA v MA [2007] 1 FLR 1760 at para. 90) meant that the pre-marital agreement was not upheld in its entirety, its effect was to circumscribe the husband’s award.  To do so was to reflect the fact that he agreed to sign up to the document at the outset and the fact that the agreement would have been upheld in the parties’ respective countries of origin. On the latter point,   Baron J held (at 93):

“Given the factual matrix, whilst I do not regard the foreign elements as determinative or ultimately fully decisive, they are definitely relevant because they are essential features.  In particular, they are discounting factors in the sense that the amount of the Husband’s claim (if not extinguished) should be reduced by pointing me towards the lower end of the bracket of any possible award”.

Practitioners will also note the Judge’s comments (at 38d) that:

“The fact that the pre-nuptial contract made no provision in such circumstances [the birth of children] and indeed omitted any consideration of such factors is a flaw which I consider makes the deal, prima facie, unfair”.

The husband was awarded £5.56m, broken down as to £2.5m for a home, €630,000 for a property in Germany (although this was to be left to the children of the family on the husband’s death), £700,000 for his legal costs, capitalised maintenance of £100,000 p.a.  and child maintenance of £35,000 p.a. per child.  As a result, the husband did better than the nothing which the pre-marital agreement provided for, but less than he would have received had there been no agreement at all.  Insofar as the costs element of the award is concerned, Baron J found (at 140):

“When the court is assessing a case on the basis of need that means that costs have to be covered or needs are not met.  Thus, in reality, in this case the payor will bear all the costs but there is no alternative”.

Mahon v Mahon [2008] EWCA Civ 901 and Behzadi v Behzadi [2008] EWCA Civ 1070
These two cases are taken together and serve as a further warning as to the consequences of failing to give full and frank disclosure in ancillary relief proceedings. 

In Mahon, the husband appealed an order providing the wife with £9m from a disclosed asset base of £10.5m.  The parties, who were South African, were married for 23 years during which children of 22, 19 and 12 had been born.  The husband, who behaved less than well during the proceedings, breaching orders for maintenance pending suit, moving assets belonging to the wife out to South Africa and cashing in policies, had moved back to South Africa where he lived with his new partner. 

At first instance, Bodey J found that the wife had assets in her own name of £400,000 and awarded her a further £9m.  The Court of Appeal held that the Judge had been entitled to infer that the husband had substantial hidden assets and make the order that he did.  There was no proposition of law that the court must attempt to quantify undisclosed or hidden assets or even be satisfied that assets exist which directly relate to the award made.  Were it to be otherwise, “the less which a husband disclosed, and thus the more blank the page upon which the judge was expected to write his judgement, the less….would the judge be entitled to draw adverse inferences” (23).

Behzadi involved Iranian nationals who had lived in England since their marriage in 1975.  Whilst the matrimonial home and investment property were located in this jurisdiction, the wife also owned properties in Iran, some of which were inherited and which she purported to transfer to the three children of the marriage although the court held that they were in fact still owned by the wife.  Like Mr Mahon, Mrs Behzadi failed to comply with interlocutory orders and failed to disclose four properties in Iran, whilst the court found that she may have other property and significant cash resources which had not been disclosed.

At first instance Hedley J awarded the husband 47% of the assets and made a costs order against the wife as a result of her litigation conduct.  On appeal, the court held that it was for the wife and not the court to establish that the value of her property in Iran was not realisable.  The sharing principle extended to all of the parties’ property, albeit less so to non-matrimonial property, and the trial judge’s order was within the range of reasonable discretion.  If the trial judge had overestimated the value of the wife’s resources (and therefore over-provided for the husband), the wife had only herself to blame. 

In addition, Wilson LJ emphasised the need for the court to produce a balance sheet of the parties’ net assets and the effect of the orders which it proposes to make and for this to be distributed to the parties and incorporated into any transcript of a judgment, saying (at 16) “in my view the proper application of the sharing principle, irrespective of whether it is in the circumstances to result in equality, requires the court to compile and articulate such a balance sheet”.

Milton v Milton [2008] EWCA Civ 926
The Court of Appeal (Thorpe and Wall LJJ) upheld the husband’s appeal against the district judge’s order that the wife pay the husband a lump sum of £60,000 within 36 months to enable the wife to return to work and obtain a mortgage.  The appeal was allowed and a term of 12 months substituted on the basis that the wife was already back at work and interest on the outstanding monies did not sufficiently compensate the husband for the delay in receipt. 

Stodgell v Stodgell [2008] EWHC 1925 (Admin)
This case involved competing confiscation and ancillary relief proceedings.  Here, the wife’s request for her application for ancillary relief to be heard before enforcement of a confiscation order for £900,000 made against the husband (who was imprisoned for tax evasion and fraud) failed.  This was the case even where retention by the state of all known assets (which were all tainted with the Husband’s criminal activity) was unlikely to satisfy the confiscation order and as a result there would be little or nothing left to meet the wife’s claims for ancillary relief.

Practice points
Re X and Y (Bundles) [2008] EWHC 2058 (Fam)

This decision of Munby J is included to alert practitioners to the importance of adhering to the requirements of Practice Directions [2001] 1 FLR 536 and Court Bundles (Universal Practice to be Applied in all Courts other than the Family Proceedings Court) [2006] 2FLR 199.  In short, failure to comply with these directions is likely to result in the firm responsible for their provision being named and shamed in judgments handed down in open court, orders for costs and adjournment of hearings.

Last, and by no means least, practitioners should be aware of the President’s guidance of 27 October 2008, which sets out changes to the way Family Division cases will be listed from 2 January 2009.  In short, cases will be allocated and listed in one of the following lists: urgent applications, short warned, FDR and general applications.