UPDATE: Shooting Tigers in a Barrell - Court of Appeal Decision

The Court of Appeal has made a ruling on the case of Quan v Bray and Others [2017] EWCA Civ 405. The case involved a dispute over a trust, known as the Chinese Tigers South African Trust, which had been set up in 2002 by a husband and wife to help repopulate Chinese tigers to the wild. The couple subsequently separated and the wife issued a claim for a financial remedy in divorce proceedings. She argued that the trust, which held approximately £25m in assets at the time, was nuptial in nature and could therefore be considered a resource available to the parties from which her financial claims could be met. There were minimal matrimonial assets outside the trust so this question was fundamental to outcome of her claim.

 

In 2014, Sir Paul Coleridge found against the wife concluding that the trust had been set up for the benefit of the tigers and not to support the couple financially. The wife sought to immediately challenge the finding through a Barrell application which was the subject of a post on this blog. She was unsuccessful and drew criticism from the judge for trying to “have another go” without going through the correct procedure.

 

Unsurprisingly then, the wife appealed Sir Paul Coleridge’s decision and the Court of Appeal handed down its decision last week. Lady Justice King delivered the leading judgment in which she considered whether Sir Paul Coleridge had provided adequate reasoning for his finding, whether or not he had dealt with all of the relevant issues and, if not, whether his conclusion would have been different. King LJ was cautious about the shortness and lack of detail contained in the original judgment, stating:

“Whilst economical judgments are to be applauded, it is hard to resist a submission that this judgment, if not actually short of background and of analysis of the surrounding arguments, was perilously close to it.”

Notwithstanding this comment, the wife’s appeal was dismissed. The Court of Appeal found that the wife had not successfully challenged the original findings and, as such, the trust was not nuptial in nature and therefore not available to the parties on the divorce.

The status of the trust was a preliminary issue which has taken years to get to this stage at considerable financial cost. King LJ referenced over £3.5m in legal costs with £340,000 alone spent on the wife’s appeal. If this is the end of the matter then the wife’s financial claim can proceed to be determined without reference to the funds in the trust. That said, given the wife’s determination in this case so far, it would not be surprising if this case were to find its way to the Supreme Court.

The original post on the case can be found here.

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.

Hey, where did my divorce go? Some alternative thoughts on Vince v Wyatt

click on image to enlarge timeline

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Time to read: 4 minutes 

The case of Vince v Wyatt [2013] EWCA Civ 495 was heard at the Court of Appeal in May 2013 and related to an application for a financial remedy which was brought by the Wife 27 years after the parties separated and 19 years after decree absolute was granted. At the end of their relatively short relationship neither party had any assets or significant income to speak of, and the Court noted that both had embraced a “New Age” lifestyle.  Over the course of the next three decades the parties’ financial lives had little to do with the other save for a couple of child maintenance applications by the Wife.  Both parties started new relationships, the children of the family grew up and reached maturity and the Husband launched a business recycling discarded materials into wind turbines.  That business, to everyone’s surprise, went on to be worth millions.

Given this timeline, it is difficult not to look at the Wife’s application with a degree of cynicism particularly when she also issued an A v A application to the tune of £125,000 for the Husband to pay her legal fees so that she could pay her lawyers to bring the claim against him. The Husband, perhaps understandably, issued an application to have the Wife’s claim struck out under the seldom used Family Procedure Rule 4.4(1). Whilst he was not successful initially the Court of Appeal allowed his appeal on the basis that the first instance judge had construed the rule too narrowly.  The Wife’s claim made it no further.

The analysis of Rule 4.4(1), and its relationship with its counterpart in the Civil Procedure Rules 3.4(2), is undoubtedly the most valuable point which practitioners can take away from this case and will be of particular use when analysing claims which involve a significant delay between separation/divorce and the application for a financial remedy, despite the extremely unusual circumstances of this case.  Among those unusual circumstances was the fact that there remained only one piece of documentation relating to the original divorce proceedings, the decree absolute, which the court was required by law to keep a copy of.

At the time of the divorce, both parties had instructed solicitors (the Wife actually consulted with solicitors on no less than 5 different occasions between 1984 and 2011) but none had retained their files.  It was therefore not possible to know for sure whether the Wife was even entitled to bring a financial claim or whether any such claim had been dealt with and dismissed, although the trial judge did acknowledge that this scenario was unlikely given the standard practice to include such an application in the petition and the lack of financial assets at the time of the divorce.

Whether a firm retains the client’s files and for how long will depend on the agreement made with the client (who is the legal owner of the files) which is usually made at the point of engagement.  If no agreement is made the SRA’s guidance on the retention of client files suggests that firm keep in mind any statutory limitation period which may arise out of the files when deciding how long to keep them.  Given that there is no limitation period for a claim for a financial remedy under the Matrimonial Cases Act 1973, how long should firms who practice family law keep their client’s files for?  After all, file storage is not cheap and even digital data will degrade over time.  The court certainly cannot be expected to keep a complete file for every divorce, they have enough trouble keeping track of the active cases let alone managing decades of historical files (plus who would meet the cost?)  Another solution, which would have solved this issue in the Vince v Wyatt case, would be to record the status of any financial claim on the Decree Absolute. Surely there is space for an extra sentence or two setting out whether any financial claims had been issued and/or dismissed? Any other suggestions?

A copy of the judgement for Vince v Wyatt can be found here and an analysis of the application of Rule 4.4(1) can be found here.

UPDATE: Supreme Court Hands Down Judgment in Prest

Supreme Court Unanimously Decides in Wife's Favour

The Supreme Court of the United Kingdom has today delivered its decision in the case of Prest v Petrodel Ltd & Others, finding that, for the purposes of section 24(1)(a) of the Matrimonial Causes Act 1973, the husband was indeed "entitled" to various properties which are held within a corporate structure and which had formed part of the wife's award at first instance. It is a huge decision, particularly for big money divorce cases, and one which many people may be surprised at following the judgement of Lord Justice Rimer at the Court of Appeal.  The judgement and summary press release can be found here and previous discussions on this topic, including on the husbands failure to provide adequate disclosure can be found here and on Chambers Women in Law Blog here.

No doubt this is a decision which will generate a huge amount of debate and is arguably as significant a family law decision as Jones v Kernott (cohabitation) and Radmacher v Granatino (pre-nuptial agreements).

Non-Disclosure in Financial Remedy Proceedings. Show me your teeth!

Is the Family Court doing enough to discourage non-disclosure and are the penalties sufficient for those who blatantly flout the rules?

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If you have not heard about the case of Petrodel Resources Ltd& Ors v Prest & Ors then you must have been living under a family law rock!  It is not often that such a case causes such a divide within the judiciary and touches on everything from the fundamentals of company law to division of assets on divorce. I’d better give a (very) brief summary of the facts for the benefit of those under-rock-dwellers before I go any further:

The husband, Mr Prest, was appealing the decision of Mostyn J who had ordered that various UK properties owned by a company, of which the husband had complete control and was the sole shareholder, be transferred to the wife as part of the divorce settlement. The Court of Appeal upheld the husband’s appeal 2 to 1 with Thorpe LJ dissenting on the grounds that the company, and not the husband, owned the properties and so they could not be considered part of the matrimonial pot. The full Court of Appeal judgement can be viewed here.

There is very little parity between the reasoning of Thorpe LJ and Rimer LJ, with each Lord Justice sticking to their judicial guns and coming to completely dichotic conclusions.  So who is right?  Well, that is a question that the Supreme Court will no doubt consider and family lawyers will be waiting with cautious anticipation for the answer.

One item that was not in dispute between the judges was the lack of financial disclosure provided by the husband.  This was summarised by Mostyn J at first instance:

“I have sought to make sense of the husband's factual case. Ultimately I have decided that this has been a vain task because the husband has failed so comprehensively to comply with his obligation to provide full and frank disclosure...”(para 12)

Whilst this lack of financial disclosure allowed for adverse inferences to be drawn, it did not provide a route to the impropriety necessary to pierce the corporate veil and get to the assets which were tied up in the company.  This left the family judges (Mostyn J at first instance and Thorpe LJ in the Court of Appeal) reaching for a way to implement a fair outcome whilst arguably stretching their powers under s.24 (1) of the MCA 1973 while the commercial lawyers applied the less flexible company law to the scenario.  There has been plenty of discussion about the impact this decision may have on the way in which family law is practiced and I do not intend to add further to that particular debate at the moment.  I want to consider what the Family Court can do to encourage full and frank financial disclosure and penalise those who willfully disregard that obligation.

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.  These are serious penalties which family solicitors are obliged to inform their clients of at the outset of proceedings. But are they enough of a deterrent for people like Mr Prest who viewed the proceedings as“a game in which he has sought to manipulate the process to his advantage” (see Thorpe LJ's judgement para 28).

Committal Proceedings are generally considered a last resort and there can be a great deal of disregard for court orders before the family court deploys those particular teeth, after all you are talking about taking away someone's liberty. But the Family Court has not shied away from using the threat of such a penalty in extreme cases.  Recent instances include property tycoon Scot Young who was ordered to explain the vanishing of his vast fortune (which occurred suspiciously at around the same time that his wife asked for a divorce) or face a prison sentence. The recently reported Winter v Winter also involved committal proceedings for willful breach of a Court Order to bring funds into this jurisdiction. In that case, Mrs Justice Baron said of the husband’s approach to the proceedings “the time has come to put an end to his disrespectful approach to a court of law. Courts are not toothless bodies. They make orders in order to regulate positions between human being so that society may work in a proper fashion.”

But is this enough to discourage those who see the family court as something to play with while tormenting their former spouse or should the family judges be quicker to show their teeth when they are faced with someone who obviously has no interest in playing by the rules.

What is your experience of the Family Court with non-disclosure and/or failure to comply with Court orders? Don't forget to vote in the poll on the right!