UPDATE: Non-Disclosure in Financial Remedy Proceedings

In November 2012, I wrote about Non-Disclosure inFinancial Remedy Proceedings. The question I was posing was whether the family courts were doing enough to discourage parties in financial remedy proceedings from failing to provide financial disclosure. The cases I looked at, which included Young v Young [2013] EWHC 34 (Fam), Petrodel Resources Ltd& Ors v Prest & Ors involved the Courts having to make decisions in contested hearings. Two recent decisions of the Supreme Court look at what the correct approach is when a settlement is reached outside of court and non-disclosure is discovered at a later date.

In my previous post I set out the basis for the obligation to provide full and frank disclosure and set out some of the consequences for those parties who refused to comply:

The duty to provide full and frank disclosure is an inherent part of UK family law and is set out in the pre-action protocol annexed to Practice Direction 9A – Application for a Financial Remedy of the FPR 2010.  If a party fails to provide such disclosure, particularly if they have been specifically ordered to do so by the Court, then in addition to adverse inferences being drawn, that party could also face imprisonment, a fine, a costs order against them, inability to proceed with their application (Hadkinson Orders) or they might even face criminal consequences under the Fraud Act 2006.

The Supreme Court’s decisions in Sharland v Sharland [2015] UKSC 60 and Gohil v Gohil [2015]UKSC 61, confirms that there is a further consequence to non-disclosure. Both cases involved wives who had given up their entitlement to a full hearing of their financial claims and had instead reached an agreement with their respective husbands as to how much they would receive. It later emerged that both husbands had fraudulently withheld information that was relevant to their financial position at the time those agreements were reached and considered by the Court. In both cases the Supreme Court ruled that the original orders should be set aside.

The cases also confirmed that the duty to provide full, frank and honest disclosure is not only central to any agreement being valid but is a duty owed to the Court which cannot be eroded or vitiated by agreement or subsequent events.

In any event, it would seem that the massage from the Supreme Court is clear. Non-disclosure will not be tolerated in financial remedy proceedings!

UPDATE: Surrogacy & Parental Orders

Sir James Munby (President of the Family Division) has been drawing the “boundary line” in the ‘reading down’ of s.54 of the Human Fertilisation and Embryology Act 2008.

This topic was discussed in a recent post: Time for Change? What should Re X mean for surrogacy law in the UK?

Section 54 sets out the requirements that need to be met before the court can grant a parental order to the commissioning parents following the birth of a child to a surrogate. ‘Reading down’ refers to the application of section 3 of the Human Rights Act 1998 which states that legislation:

“...must be read and given effect in a way which is compatible with the Convention rights.”

In the recent decision of Re Z [2015] EWFC 73, Munby P refused to grant a parental order to a single father on the basis that he could not bring himself within s.54(1) of HFEA 2008 which states that the application can only be made “by two people”. The principle Convention right the father was invoking was the Article 8 right to a private and family life.

Previously, in Re X [2014] EWHC 3135, Munby P had used the principle of reading down to find that he could make a parental order notwithstanding the fact that the parties could not bring themselves within s.54(3) which required the application to be made with 6 months of the child’s birth. Other subsections have also been interpreted to allow parental orders to be made in situations where, on the literal wording of the Act, they could not be made.

This latest judgment distinguishes s.54(1) as going to the very nature of the legislation and clearly reflecting the intention of Government having given the issue due consideration. Munby P therefore concluded that he could not interpret s.54(1) to extend to applications made by a single person. Particular weight was given to the fact that the issue had been debated by Parliament and rejected in the lead up to both HFEA 2008 and its predecessor the HFEA 1990 and extracts from Hansard were quoted in the judgment. No such debate was had in respect of the requirement for the application to be made within 6 months the absence of which was relevant to the decision made in Re X.

You can read more about statutory interpretation and the decision in Re X here.

Time for Change: What should Re X mean for surrogacy law in the UK?

Kalmatsuy/Shutterstock.com

Statutory interpretation plays a fundamental part in our legal system. Bills are drafted and debated in Parliament which then votes on what the law will be and those bills eventually become statutes when Royal assent is given. These statutes, once in force, are then interpreted and applied by the judiciary in accordance with established rules in order to give effect to what Parliament intended. This is not always a straight forward exercise as statutes can be ambiguous or fail to account for unforeseen situations. Occasionally, a statute simply cannot be interpreted in any sensible way. This was the conclusion of the President of the Family Division, Sir James Munby, when considering the provisions of the Human Fertilisation and Embryology Act 2008 in the case of Re X (A Child)(Surrogacy: Time Limit) [2014] EWHC 3135.

The case considered an application for a ‘parental order’ made by a couple who had entered into a surrogacy arrangement with a woman in India. When the child was born, in accordance with the law (specifically ss. 33 & 35 of the HFEA 2008), the surrogate and her husband, not the commissioning couple, were the legal parents of the child and the only people with parental responsibility. In any case involving a surrogate, an order is required to extinguish the parental status of the surrogate parents and give it to the commissioning couple. If this is not done, then the legal status of the child does not change.

From 2013 to 2014 there were 201 applications for parental orders in the UK (a figure which is increasing) but it is estimated that thousands of surrogacy arrangements are entered into by UK couples every year. There must therefore be thousands of children being raised by couples who think they are the child’s legal parents, but in reality, they are not. Mrs Justice Theis called this a “legal time bomb” in her address to the Surrogacy Symposium in London earlier this year as it could cause significant problems in the future. For example, the commissioning couple would have no right to apply for a passport for the child or an inheritance to the child might fail. 

The procedure for making an application for a parental order is set out in s. 54 of the HFEA 2008 and includes various conditions which must be met if the parental order is to be granted. One of these conditions is set out in s.54(3) which states:

 “…the applicants must apply for the order during the period of 6 months beginning with the day on which the child is born.”

On the face of it, this seems to be an unequivocal piece of drafting leading to the simple conclusion that if an application was made after the 6 month deadline a parental order cannot be made. This had been the accepted position prior to Re X with those who miss the deadline having to resort to adoption orders to regularise their relationship with their child. Adoption orders are considered less favourable than parental orders as they do not allow for a new birth certificate to be issued. Munby, however, disagreed with the accepted position and found that he did have power to make a parental order notwithstanding the fact that the application had been made over two years after the birth of the child in question.

In reaching this conclusion, Munby considered s.54(3) in light of the rules of statutory interpretation developed through case law going back to 1877 as well as the European Convention on Human Rights (ECHR) and the welfare of the child in question. He gave weight to the fact that the issue was one of fundamental importance to the child’s identity which would have profound consequences for the rest of the child’s life and that the reason for the delay was that the commissioning parents were unaware of the need to make the application despite their best efforts to research the matter in advance. He also noted that there was no guidance to be found as to why Parliament had included the 6 month rule in the first place but concluded that Parliament would have intended a ‘sensible result’. At paragraph 55, he said:

“Given the subject matter, given the consequences for the commissioning parents, never mind those for the child, to construe section 54(3) as barring forever an application made just one day late is not, in my judgment, sensible. It is the very antithesis of sensible; it is almost nonsensical.”

Munby was satisfied that he could make the parental order notwithstanding the fact it was made after the 6 month deadline. He did so initially based solely on the authorities of statutory interpretation but went on to say that he would have come to the same conclusion with reference to the ECHR as the statue required ‘reading down’ to ensure that its terms were interpreted in such a way as to protect Convention rights. In Re X, the Article 8 right to family life of both the parents and the child was considered.

The concept of ‘reading down’ comes from the UK Supreme Court case of Pomiechowskiv District Court of Legnica, Poland and another [2012] UKSC 20. It was considered again in Adesina v Nursing and Midwifery Council [2013] EWCA Civ818, a case which considered whether the rejection of an appeal filed a few days after the time limit breached the Article 6 right to a fair trial. In that case ‘reading down' was described as:

“…leaving some wiggle-room, notwithstanding the apparently absolute nature of the time limit.”

Interestingly, the finding in Adesina was that, whilst there could be some wiggle room, a few days in the context of that particular case was too long to enable the court to apply it and the appeal failed.  Munby distinguished Re X, where the application was made years after the time limit, on the basis it was necessary to protect the rights of the child who was in no way responsible for the delay but who would be the one to suffer the consequences for the rest of its life.

Finally, Munby considered the welfare of the child and concluded that making the parental order was unquestionably in its best interests and so could be justified on that basis as well.

It should be noted that other conditions of s.54 were considered, including whether the child had his ‘home’ with ‘both’ of the commissioning parents in accordance s.54(4) notwithstanding the fact that they had separated, and whether payments other than ‘reasonably incurred expenses’ had been made in breach of s.54(8). It is, however, the analysis of the 6 month rule in s.54(3) which arguably presents the most extreme example of judicial interpretation being stretched to its limits.

The decision in Re X could be hugely significant as there are undoubtedly many couples who were unaware they had to make an application for a parental order following a surrogacy arrangement but who have now missed the 6 month window. There have already been several cases since Re X in which applications for a parental order made after the 6 month deadline have been granted including A and B (No.2 Parental Order) [2015] EWHC 2080 (Fam) and Re A and B (Children) (Surrogacy: Parental Orders: Time Limits) [2015] EWHC 911.  This relaxing of the rules may go some way to diffusing the ‘legal time bomb’ referred to by Theis J but are we missing the bigger picture?

The law governing surrogacy arrangements in England & Wales has been the subject of an increasing amount of debate in recent years and has been described by some leading experts (including the barrister who represented the child in Re X) as “woefully inadequate”. A candid analysis of Munby’s conclusions in Re X reveals s.54(3) of the HFEA 2008 to be a nonsensical piece of legislation which is incompatible with the ECHR and contrary to a child’s welfare. Surely the logical conclusion here is that the law needs to change, something which can only be done by Parliament. Yet does this type of extreme judicial interpretation not only blur the line between the legislature and the judiciary but also accommodate the problem rather than acting as a catalyst for much needed change?

When balancing the rules of statutory interpretation against the fundamental and lifelong relationship between a child and its parents, Re X confirms that the welfare of the child will be paramount. This will almost invariably lead to parental orders being made in such situations. But surely that conclusion, however justified, should not detract from the wider significance of the case in highlighting the fact that the law governing surrogacy in the UK is in desperate need of reform?

This blog was created to encourage debate and comments are therefore welcome.
AN UPDATE ON THIS POST CAN BE FOUND HERE.

Handbags at Dawn: Finding the true value of luxury goods on divorce

One of the trickier aspects for many couples getting divorced is how to divide up their chattels, or personal belongings. There is often a sentimental value placed on items by one or both parties which does not necessarily correlate to their true value and, particularly in an acrimonious setting, a breakdown in trust and desire to see the other party punished can blow arguments over who gets to keep the family silver massively out of proportion. That said, litigating over such matters is rarely cost effective and carries a huge amount of uncertainty. Remember, the value of an item will be the net value not the purchase cost or the insurance value. As a result the case law on this issue is far from comprehensive despite disputes over chattels being relevant to almost every case in practice.

The few cases that do address the distribution of chattels do so at a very high level with the value usually being considered insignificant to the overall assets. In the recent case of Arbili v Arbili [2015] EWCA Civ 542 Macur LJ was quick to dismiss the husband’s argument that a mathematical error in calculating the value of the chattels was in any way supportive of his case to appeal the first instance decision citing the error to be of “negligible if any significance” (para 15). In addition, chattels tend to be divided into classes, the obvious ones being cars, jewellery and artwork although other often cited classes include antiques, guns, watches and wine.

In Evans v Evans [2013] EWHC 506 (Fam) Moylan J distinguished between those items to be distributed by value and those by class:

“[…]I provisionally propose that the disputed items (wine, antiques, art, piano) should be divided equally by value between the parties leaving out of this account the other chattels divided as set out above. I have excluded the other chattels from this exercise because I do not consider it necessary in order to effect a fair division for the value of these other items to be included. In my judgment it is fair to divide them by reference to the nature of the asset such that, for example, the wife retains her jewellery and the husband retains his. In value terms this results in an imbalance between the parties, but this is insignificant in the context of the case as a whole.” (para 77)

This approach is more common in the big money cases that have the resources to litigate further than most. What then if the value of the chattels do constitute a significant proportion of the overall wealth and might even be relevant when considering the needs of the parties. This could arise where there has been a dramatic drop in the families’ resources following a previously high standard of living which included a large amount of luxury and investment purchases. In Evans v Evans, Moyan J seems to make a distinction between those items personal to the parties, such as jewellery and the wife’s furs which the parties were allowed to retain without reference to their value, and items which could be used for mutual enjoyment in the home, such as the wine or artwork.

Arguably, this is going to be a very case specific issue and what is fair is going to depend very much on the circumstances. For example, in S v S [2013] EWHC 506 (Fam) the husband’s car collection was not included in the asset schedule and, as such, Bodey J found that the wife’s jewellery, which the husband valued at £196,000 should also be excluded.  Yet when reviewing the asset schedule in JB v MB [2015] EWHC 1846 (Fam) Mr Cusworth QC found that “I have rightly included chattels as this rightly adds the value of H’s two Porsche motor cars”. (para 42)

Does this mean that the parties’ spending habits during the marriage are relevant? What if, for example, the husband preferred to purchase items of a less personal nature, such as artwork or cars, and the wife purchased couture fashion, shoes and handbags. Arguably, both a Picasso and a pair of Christian Louboutins will provide personal pleasure to the owner but is the Picasso’s investment value more obvious particularly as the shoes also have a practical purpose?

Regardless of the practical function of an item or the fact that it has been pre-owned some fashion objects do have a resale value which could make them less ‘personal’ and more ‘investment’ particularly if they have been well taken care of and come with the original packaging and provenance. There are now many online retailers specialising in selling preowned luxury fashion not to mention the major auction houses having dedicated sales.

Having done some extensive research (!) the items which appear to retain their value best are handbags with the most desirable brands being Hermès and Chanel. Indeed many such bags tend to increase in value, particularly if they are a limited edition with some Hermès Birkin bags re-selling for between £10,000 and £56,000. Christies auction house recently sold an Hermès Fuschia Crocodile Birkin in Hong Kong for £146,000 becoming the most expensive hand bag ever sold.

With prices like these a collection of high end handbags built up over the course of long marriage between a wealthy couple could easily rival or even exceed the value of a vintage car or art collection. So should we be looking beyond the obvious and taking into account both the nature of the parties spending during the marriage and the specific items purchased? This approach would have to be carefully balanced against the costs, both financial and emotional, of encouraging further arguments in situations where a swift resolution can be worth more than an accurately balanced asset schedule and, based on the case law to date, the Family Court is unlikely to have much tolerance for detailed discussions on such issues in financial proceedings. That said, a husband might feel somewhat aggrieved if his wife’s ‘personal items’ are excluded while his Porsche gets added to the asset schedule for distribution or is expected to be sold to meet the parties’ needs.

UPDATE: Hey, where did my divorce go? Supreme Court judgment in Wyatt v Vince

TIMELINE: click on image to enlarge

The Supreme Court has released its decision in the case of Wyatt v Vince [2015] UKSC 14 following the wife's appeal against the decision of the Court of Appeal to strike out her financial remedy claim which was brought 20 years after the parties divorced.

In a previous post on this blog, which sets out the facts of the case and provides a timeline of events, I looked briefly at the Court of Appeal's decision and specifically focused on the issue of retaining client documents in circumstances where there is no limitation period.

Whilst the Supreme Court allowed the appeal, it should be noted that this is in relation to the interpretation and application of the law, specifically Rule 4.4(1)(a) and (b) of the Family Procedure Rules 2010, and not in relation to the merits of the wife's case.

With a case like this with such extreme and unusual facts, and with issues that generate such strong emotions and opinion, there can be a tendency for the media to get carried away. Examples of some of the headline over the last two days are set out below: 

"Former New Age traveller wins right to cash he made 10 years after they divorced" from The Metro 11 March 2015

"Wife wins right to ex-husband's millions - 30 years after they separate" from www.bestdaily.co.uk

"Millionaire tycoon Dale Vince faces having to buy ex-wife a home 23 years after they divorced" from London Evening Standard

What the Supreme Court found:

The Supreme Court found that the Court of Appeal had exercised a power to strike out a financial claim on divorce based on a summary assessment of the merits of the claim when such power does not exist in family proceedings. Such a power does exist in civil proceedings in order to prevent people being able to pursue un-meritorious claims at an early stage. The Court of Appeal judges had reasoned that an equivalent power must also exist in the FPR notwithstanding the fact that it was not explicitly stated. The Supreme Court found that the omission in the FPR was deliberate citing the differing nature of a claim arising from a civil or commercial relationship and that of a claim arising from the breakdown of a marriage which could have financial consequences for an ex-spouse years after the marriage particularly when there are children involved.

What the Supreme Court did not find:

The Supreme Court did not find that Kathleen Wyatt was entitled to a share of Dale Vince's millions but rather that she is entitled to have her claim heard before the Court with due consideration to all the factors set out in section 25 of the Matrimonial Causes Act 1973, of which the considerable delay between the divorce and the claim will be relevant as will the fact that the husband made his money after the parties separated. It may be that, following such an exercise, the High Court may decide that Katheen Wyatt should be entitled to receive something from Dale Vince but that is yet to be seen and is by no means a foregone conclusion.

Whilst there may be some concern about people bringing un-meritorious claims against their former spouses years after they have untied the knot, surely it is of equal importance to consider dealing with a couple's financial claims sooner rather than later so that such issue can be avoided in the future? After all, it was open to Dale Vince to ask the Courts to determine his ex-wife's claim at any time over the last three decades but he did not do so.

It remains the case that there is no limitation period on financial claims on divorce. If the claims are not addressed and dismissed they will remain open. That is the position in law which the Supreme Court has made clear this week.

Please make any comments below.

The Blackest of Arts: Calculating compensation claims on divorce.

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When a married couple find out that they are expecting their first child an inevitable question arises as to the division of labour within the marriage particularly when both parties are working professionals. In many cases, more so in previous decades, the spouse with the higher earning capacity (historically the husband) would continue as breadwinner and the lesser earning spouse would give up work to take care of the children. Under English law the homemaker’s contribution is usually given equal weight against the breadwinner’s financial contribution for the purposes of determining a financial settlement on divorce. With the advancement of women in the workforce the distinction between the higher and lower earner is likely to be less prominent but when a spouse gives up an exceptional career, thus permanently sacrificing their high earning capacity, an additional claim, beyond that of having ones reasonable needs met, can arise on divorce, that of “compensation”.

 

Compensation was first fully established in the case of Miller v Miller; McFarlane v McFarlane [2006] UKHL 24 (the two cases were heard together but it was the wife in McFarlane who claimed compensation). As Baroness Hale put it:

  

“Why should a woman who has chosen motherhood over her career in the interests of her family be denied a fair share of the wealth that her husband has been able to build up, as his share of the bargain that they entered into when that choice was made,…”

Paragraph 120 of the House of Lords judgment.

It will not, the Courts are keen to remind us, be applicable in many cases but when it is invoked it requires a difficult economic forecasting exercise which one judge has referred to as “the blackest of arts”. I refer to Mr Justice Coleridge’s comments in H v H [2014] EWHC 760 (Fam) in which he sought to capitalise a maintenance order which included an element of compensation in order to achieve a clean break between the parties. His attempt to “achieve fairness between the parties in light of the past, present circumstances and in light of the future facts in so far as they can be predicted” led to an interesting accounting exercise which the Court of Appeal have since expressed doubts over and the matter has now been referred back to lower courts to be re-heard

In McFarlane, the Court compensated the wife for giving up a career as a city lawyer. Similarly, in H v H, after marrying in 1983, in 1990 the wife gave up a highly paid accountancy role to raise the children and enable the husband to focus on his career at a bank. On separation in 2004, the husband had achieved partner at the bank with a staggering earning capacity and considerable benefits and the wife had not worked for 14 years. In 2005 the wife had agreed to maintenance at £90,000pa but, following the McFarlane decision in 2006, successfully applied to have that sum increased to £150,000pa specifically to recognise the compensation element of her claim. It is noteworthy that the compensation element was to be paid through ongoing periodical payments and was not considered to have formed part of the capital the wife had received as part of the divorce settlement which had included the family home. The current proceedings came about because the husband was seeking to terminate the wife’s maintenance payments because his circumstances would be changing in that he was looking to retire within 2 years (aged 56) for personal reasons and, in any event, he claimed that he had fulfilled his financial obligations to the wife. 

After considering the situation, Coleridge J accepted that the husband’s circumstances were changing for legitimate reasons and that his earning capacity would be reduced although he did not accept that it would be reduced altogether considering the husbands skills, age and circumstances. He decided that it would be fair to capitalise the wife’s maintenance on the husband’s retirement taking into account the compensation element. It was his method of calculating the value of this award which the wife objected to and which the Court of Appeal decided was flawed.

Coleridge J had made an award which would allow for the wife’s reasonable needs to be met from her capital resources, including the family home and her savings, together with a lump sum of £400,000 to be paid by the husband on his retirement. He accounted for the compensation element by excluding over 70% of the value of the former family home from the calculation together with any additional savings she could put aside prior to the husband’s retirement and also by attributing what he argued was a generous annual return on the income to be generated from the capital being assessed. The wife objected on the basis that in 2007 court had decided that the compensation element of her claim should be derived from the periodical payments only and it was not fair to look to the capital assets she had already received on the divorce to meet that element going forward. She argued that this would have the effect of undoing the compensation award which would put her at a significant financial disadvantage. Concerns were also raised in relation to the rate of annual return used to calculate the rate Coleridge J had applied did not correlate to the rates discussed during the proceedings and, without sufficient explanation in the judgment, it appeared to the Court of Appeal as being a somewhat arbitrary figure.

The case will now be heard again and it will be interesting to see how another judge approaches this problem. If, as Coleridge J has claimed, such an accounting exercise is indeed a black art, then arguably a detailed approach is always going to be open to forensic scrutiny and objection. Perhaps it would be more sensible to take a broader approach in order to achieve a fair result rather than dwelling on complex calculations which will always be open to scrutiny and objection by the dissatisfied party.

Compensation cases, whilst rare at the moment, could increase as women continue to find equality with men at the higher end of their professions. Notwithstanding this, these cases tend to be very fact specific and, without the use of a functioning crystal ball, it is impossible to know how someone’s career will, or would have, progressed had different choices been made. So how does this help the happily married couple who are facing the decision as to who gives up their career to care for the home and children? Arguably, not much. Some damage limitation could be done with either a pre- or post-nuptial agreement addressing the issue of compensation, or by ensuring that both parties have been adequately and equitably provided for by way of pensions and/or other investments (something which was not really touched on by Coleridge J in H v H). However, discussions regarding long term financial planning in the event of divorce are hardly going to be high on an expecting couples list of priorities. It may be then that the Courts will, on occasion, be required to engage in this blackest of arts in order to achieve a fair result. It may even be that further case law will lead to further guidance in this matter which could help to clear the fog and mysticism surrounding such calculations.

If you have any thoughts on this issue please feel free to share them by making comments.