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June 2012 Finance Divorce Update

Anna Heenan, solicitor and David Salter, Joint Head of Family Law at Mills & Reeve LLP analyse the latest financial remedies and divorce news and cases.

Anna Heenan and David Salter both of Mills & Reeve LLP

This update for financial remedies and divorce practitioners is divided into two parts.  The first part highlights those items from the News last month which we think will be of particular interest to readers and the second part summarises the key cases.

News Update

Government plans divorce app to help separating couples 
The Telegraph reports that the Government is considering a divorce app to help couples separate amicably. The app is intended to provide guidance on a range of issues, including child support payments, coping with new partners and interacting with step-children.

For the full story, click here 
Fifth update on progress with the Family Modernisation Programme published
Mr Justice Ryder has published his fifth update on the Modernisation Programme, dealing with the arrangements needed to implement the changes in the Crime and Courts Bill. The measures in the Crime and Courts Bill include the creation of a single family court.

For the full story, click here

Nick Clegg and Andrew Mitchell provide support for same-sex marriage
The Deputy Prime Minister, Nick Clegg, and the Secretary of State for International Development, Andrew Mitchell, have both expressed support for same-sex marriage in recent interviews. Nick Clegg was involved in a broadcast for the Out4Marriage website and Andrew Mitchell's interview can be found in the New Statesman.

For the full story, click here 

The Law Society supports marriage for all
The Law Society Response to the government consultation on same-sex marriage supports the government proposals, arguing that marriage should be "equally accessible to all."

For the full story, click here 

Scotland likely to back same-sex marriage
According to the Press Association, a majority of MSPs are committed to voting in favour of same-sex marriage. The results of the Scottish Government consultation on same-sex marriage are due to be published later this month.

For the full story, click here 

Jewish groups express support for pre-nuptial agreements
The International Rabbinic Fellowship and the Mavoi Satum organisation have both promoted the use of pre-nuptial agreements for Jewish couples in order to prevent one of the partners from refusing to give or accept a bill of divorce, or get, if the relationship should fail.

For the full story, click here 

The Financial Times reports an increase in farmers signing pre-nuptial agreements
The article reports that a rise in land prices has resulted in an increase in pre-nuptial and post-nuptial agreements amongst farmers.

For the full story, click here 

Forced Marriage to become a criminal offence
The Government has announced that forcing someone to marry in England and Wales will become a criminal offence following a 12-week consultation.

The Ann Craft Trust has expressed concern that this move might prevent people from reporting forced marriages in future.

Further information can be found here 

Concern raised over the Inner London and City Family Proceedings Court
The Law Society Gazette reports that a group of 160 leading family lawyers and social workers have expressed concerns at the planned closure of this court, which houses the Family Drug & Alcohol Court.

The intention is that the Inner London & City Family Proceedings Court will be subsumed within the Principal Registry of the Family Division.

For the full story, click here

Case law update
This section of the update includes cases involving non-marriages and claims under the Matrimonial and Family Proceedings Act 1984, the extent to which HMRC can access documents produced in financial remedy proceedings and the proper treatment of wasted costs orders.

Dukali v Lamrani [2012] EWHC 1748 (Fam) (Holman J) 15 March 2012
This case considers a claim under the Matrimonial and Family Proceedings Act 1984 in respect of a non-marriage.

The parties were both Moroccan citizens and Muslim. They were married through a Moroccan civil marriage ceremony at the Moroccan consulate in London. The ceremony was performed by a notary and not by an Imam.  There was no compliance or purported compliance with the English Marriage Acts 1949 to 1994.

There was a final divorce in Morocco, which made very modest financial provision for the wife. The wife relied on that divorce as triggering her right to apply for financial relief after an overseas divorce under Part III of the Matrimonial and Family Proceedings Act 1984. Section 12 of that Act provides:

12(1) Where –

(a) a marriage has been dissolved or annulled…. by means of judicial or other proceedings in the overseas country, and

(b) the divorce [or] annulment….is entitled to be recognised as valid in England and Wales,
either party to the marriage may apply to the court in the manner prescribed by rules of court for an order for financial relief under this Part of this Act.

The issues were:

1. whether the wife could establish that there had been a "marriage" between the parties within the meaning of that word in s 12(1)(a); and, if so
2. whether the Moroccan divorce was entitled to be recognised as valid in England and Wales as required by s 12(1)(b).

On the first issue, Holman J considered the authorities and noted that "questionable ceremonies" should be dealt with on a case by case basis. He considered the case of Chief Adjudication Officer v Bath [2000] 1 FLR 8 in which a long period of cohabitation gave rise to the presumption of a valid marriage, despite non-compliance with the Marriage Act 1949. The parties here had cohabited for 7 or 8 years, which was held to be an insufficient period. Therefore, this was a non-existent marriage:

"It was not valid because there was manifold non-compliance with every requirement of the Marriage Acts… It was not void because… it did not event purport to be a marriage under the provisions of the Marriage Acts…"

Therefore, the wife could never have obtained English matrimonial relief or financial relief.

Holman J then considered whether a "non-existent" marriage for the purposes of English relief under the Matrimonial Causes Act 1973 could qualify as a marriage for the purposes of s 12 of the 1984 Act. He commented that there was no doubt that the parties intended their marriage to have legal consequences.  He also noted that if the parties had travelled to Morocco and done there exactly what they did at the consulate in London then they would have had a valid marriage in both countries. Nevertheless, whilst expressing sympathy for the wife, he concluded that "marriage" for the purposes of s 12 must mean "and can only mean, a marriage which is, or under English law is generally recognised as, a valid or at least a void marriage. That is the natural meaning and scope of the word 'marriage' when used in this context."

In light of this, it was not strictly necessary to consider the second issue and the judge preferred not to express a view about the circumstances under which the Court could have refused to recognise the divorce under Family Law Act 1986, s 51(2).

The Commissioners for HM Revenue and Customs v Mr John Robert Charman (1) and Ms Beverley Anne Charman (2) [2012] EWHC 1448 (Fam) (Coleridge J) 29 May 2012
This case considers the circumstances in which information produced in financial remedy proceedings can be disclosed to HMRC.

The Respondents were the husband and wife involved in the big money case of Charman v Charman [2007] FCR 217. One of the issues that impacted on the wife's award in that case was the extent of the husband's potential tax liabilities and there was considerable evidence on this issue.

HMRC subsequently issued assessments for £11.5m of unpaid tax for the years 2001-2008, which the husband appealed. For the purposes of the appeal, HMRC sought sight and use of the transcripts of the divorce/financial proceedings and many other documents that were filed in, or brought into being for, the hearing. The husband objected to producing these (although the wife did not) and HMRC issued an application for production. Both sides agreed that in the absence of both husband and wife's consent, the documents and other evidence were not disclosable unless the judge exercised his discretion to order their production.

HMRC argued that it was always in the public interest for the right amount of tax to be paid by taxpayers. The husband argued that he "gave evidence during [his] divorce in private and was protected by the cloak of privilege and the parties' duty of confidentiality. For that to be lifted now, with no justification, with no wrongdoing having been proven and without even a final assessment…would be entirely unfair."

Coleridge J had regard to Family Procedure (Amendment) Rule 2012, rule 29.12(1):

"Except as provided by this rule or by any other rule or Practice Direction, no document filed or lodged in the court office shall be open to inspection by any person without the permission of the court, and no copy of any such document shall be taken by, or issued to, any person without such permission."

The authorities
Coleridge J considered that S v S (Inland Revenue: Tax Evasion) [1997] 2 FLR 774 established that the court has a discretion as to whether to permit disclosure of the papers to HMRC and that it will be very rare for that discretion to be exercised in their favour. In S v S the court considered the two competing public interests:

1. that all tax due should be paid and that in serious cases tax evaders should be convicted and sentenced; and

2. that parties in financial remedy proceedings should make full and frank disclosure of their resources (and so all aspects of their financial history), which might be discouraged if this could lead to exposure of the position to HMRC.

In S v S, the judge found the husband guilty of tax evasion but refused HMRC's application for disclosure on the basis that the finding was of the most general nature and was drawn from inference, rather than from any specific line of the documents. It was also relevant that the evasion had occurred 9 years beforehand. In reviewing this case, Coleridge J commented that:

"The obligation on a party to an application for financial remedies to make full and frank disclosure is absolute. It is a fundamental principle and is of paramount importance if the court is to fulfill the obligations imposed on it by the Matrimonial Causes Act 1973."

Coleridge J also considered the judgment in Clibbery v Allan [2002]  EWCA Civ 45. He noted Butler-Sloss LJ's statement in that case that the approach of the courts in family proceedings was inquisitorial, even in non-children cases. He also noted that the court was to have regard to all the circumstances in ancillary relief applications and that the requirement of full and frank disclosure in ancillary relief proceedings placed a "considerable degree of compulsion" on both parties. The judge cited Butler-Sloss LJ's review of the authorities, which had concluded that:

"[71]  In each of the above cases, the obligation on the parties to make full and frank disclosure in their financial disputes was of such importance that it was in the public interest to preserve confidentiality of that information by means of the implied undertaking. In order to achieve compliance with disclosure by the party under the obligation to do so, the party seeking the disclosure is required by the court only to use that information for the purposes of the proceedings. It is the protection provided by the court in cases of compulsion. Ancillary relief applications are appropriately heard in private in accordance with the 1991 Rules, see above. The public may not, without leave of the court, hear the evidence given in these applications. It would make a nonsense of the use of an implied undertaking if information about the means of a party, in some cases sensitive information, could be made public as soon as the substantive hearing commenced. Information disclosed under the compulsion of ancillary relief proceedings is, in my judgment, protected by the implied undertaking, before, during and after the proceedings are completed...

[72] The implied undertaking extends, as the cases to which I have referred above show, to voluntary disclosure in ancillary relief proceedings, to the information contained in the documents and to affidavits and statements of truth and witness statements. All such information is required for the full and frank exchange of financial information and all the relevant circumstances which may be necessary to enable the court to know, in order to come to a fair conclusion in accordance with the exercise of its statutory jurisdiction...."

The judge also had regard to Thorpe LJ's comments in the same case that family proceedings were clearly distinguishable from civil proceedings. In civil proceedings, the parties could put before the court such material as they chose as well as anything they might subsequently be ordered to disclose. In family proceedings, the parties could not bring in such material as they thought fit and were under a duty of full and frank disclosure. Therefore, all the evidence and all pronouncements of the court could not be used for other purposes unless "derived from any part of the proceedings conducted in open court or otherwise released by the judge."

Coleridge J concluded:

1. Documents and other evidence produced in financial remedy proceedings are not disclosable to third parties outside the proceedings, save that exceptionally and rarely and for very good reason they can be disclosed with the leave of the court. The fact that evidence may be relevant or useful is not a good enough reason to undermine the rule.

2. It is in the public interest for the right amount of tax to be paid by taxpayers.

3. After considering and balancing the public interests here, there was nothing rare or exceptional about this case to take it outside the general rule. The husband was entitled to say that he had complied fully with the rules of privilege and that confidentiality and privilege attached to the documents and other evidence should not be breached.

Coleridge J felt supported in this view by the following facts:

a. there was no suggestion that the husband is guilty of tax evasion or criminal conduct in relation to his tax affairs. This was a routine assessment;
b. the burden of proof was on the husband in the tax assessment; and
c. the judgments at first instance and on appeal were already available to HMRC.

If the husband wanted to rely on the evidence and documents from the hearing, then he could do so but would need to produce all relevant material to HMRC, and not just that which supported his case.

Practitioners should note that the cases of S v S and Clibbery v Allan were decided before the 2009 changes to media access to the courts.

Ezair v Ezair (Lawtel) (Thorpe, Rimer and Black LJJ) 31 May 2012
This case establishes that wasted costs orders should be kept separate and should not be included within a lump sum payment.

The husband and wife had been married for thirty years. The husband was a successful businessman and, unusually, the parties' expert forensic accountants had agreed the business was worth £2.637m. The parties' other assets (the family assets) totaled £2.04m.

The parties agreed to share the net worth of the assets equally and the judge at first instance only had to decide how to redistribute the asset to give effect to this.

The husband argued:

1. that the family assets should all be sold and the proceeds divided equally; and
2. that the wife should be given 50% of the shares in the business.

The wife argued that she should receive all of the family assets plus a balancing payment of £322,000 and the husband should retain the business assets. The wife also argued that the husband's litigation conduct (as a self-represented litigant) had inflated her costs.

The judge found that the husband had forged the wife's signature on a remortgage application. He therefore concluded that the husband could not be trusted to act fairly towards her in the future and it would be dangerous for her financial security to be dependent on the company shares. The wife was awarded all of the family assets plus a lump sum of £500,000 to reflect the husband's litigation misconduct.

The husband appealed on two grounds:

1. that the wife should not have been awarded all of the "copper-bottomed" assets; and
2. the uplift in the lump sum payment of £178,000 had not been explained.

The husband failed on the first ground but succeeded on the second. Whilst the judge was entitled to make a costs order, it was unorthodox simply to inflate the lump sum payment. The judge should have made a distinct wasted costs order. The increase suggested that the sum for wasted costs was £178,000, but that was not a considered or reasoned quantification.

The order would be rewritten to award the wife a lump sum of £322,000 and to include an order that the husband would pay the wife's unnecessarily incurred costs as a result of his litigation misconduct. The case would be remitted to the trial judge asking him to consider:

- that the husband had been a self-represented litigant in complex financial remedy proceedings;
- that the husband had been ordered to pay the wife's costs at various interim hearings (to ensure there was no double-penalty in ordered the husband to pay interim and final costs); and
- that the wife's costs had not been subject to assessment by a costs judge and were, therefore, likely to be reduced.