Football & Family Arbitration: When can you appeal a bad result?

No one likes to pay for a bad result. Any Arsenal fan who paid £14.95 to Sky Box Office last weekend to see their team beaten at home 0-3 by Aston Villa will tell your that (if you have the courage to ask them).

In family law, parties litigating their divorce have the option to pay for a resolution out of court by using the Family Law Arbitration Financial Scheme. This is where the parties agree to appoint an independent third party, usually a practising barrister, to hear their case and make a binding decision (an award) which is then converted into a court order. This not only eases the burden on an overloaded Court system but usually allows for a much quicker and less stressful process which is kept private - an important advantage for high profile people who want to avoid making headlines with their personal affairs. A recent case, however, may have dramatically changed the nature of family arbitration.

In Haley v Haley [2020] EWCA Civ 1369, Lady Justice King considered what the correct test is when one party challenges the outcome of the arbitration and refuses to consent to the arbitration award being made into a financial order. Should the test be under the Arbitration Act 1996, from which the Family Law Arbitration Scheme derives its authority, or the Matrimonial Causes Act 1973, under which the financial order is made?

If the correct test is under the AA 1996 then the circumstances in which the award can be challenged are extremely limited. A party would have to establish that:

a.    the arbitrator had a lack of substantive jurisdiction (s67); or

b.    there has been a serious irregularity affecting the tribunal, the proceedings or the award (s68); or

c.    the award was [obviously] wrong on a question of law (s69).

There is no scope to challenge a finding of fact or to question the fairness of the award. It is very difficult to challenge an arbitration award on these grounds. This was an intentional outcome of the AA 1996 in order to promote certainty in commercial disputes.

If the correct test is under the MCA 1973, then award would be treated as if it had been made by a judge in the Family Court at a final hearing and the party appealing the decision would need to establish that the there is a real prospect that the award was:

a.    wrong; or

b.    unjust because of a serious procedural or other irregularity in the proceedings.

In applying this test, the court can consider the fairness of the award and whether the outcome is unjust. This provides a much wider scope for challenging an arbitration award.

In support of the test under the AA 1996, it was argued that the parties had agreed to the terms of arbitration under the AA 1996 and had therefore “[bought] the right to get a wrong answer”.  In other words, they had agreed to be bound by the result of the arbitration even if they felt it was unfair or unjust.  Lady Justice King disagreed. She found that the correct approach is the ‘appeals’ approach under the MCA 1973. In doing so she relied on the “fundamental tenet of fairness which has informed every decision made by the courts since the landmark case of White v White [2001] UKHL 54.” (para 92)

So what does this mean?

It means that there is wider scope to challenge an arbitration award notwithstanding the fact that the parties had agreed to accept the award as being binding. The next question is whether this is a good thing or a bad thing for family arbitration?

On the one hand, the appeal system exists because sometimes, for whatever reason, the court does not come to a fair decision. The same must be true of arbitration awards, sometimes they will be unfair. Why should the party who decided to take their case out of the court system and arbitrate be denied the same right of appeal as someone who has their case heard before a judge?  On the other hand, by using fairness rather than the strict terms of the AA 1996, the benefits of privacy and certainty, that arbitration promised, are now significantly diluted.

Where do we go from here?

As a result of Haley v Haley, some people may now be put off arbitration because it can no longer offer the privacy and finality of an equivalent commercial arbitration. On the other hand, others may be encouraged to arbitrate knowing that if they think the result is unfair, it can be challenged in the same way that a judgment at a final hearing can be challenged.

So, unlike football fans, who always run the risk that they might get a bad result when they pay to watch their team play, if you do pay for a result through family arbitration then you now have a better chance to challenge that result if you think it is unjust or unfair.

If nothing else, this case reminds us that if you are considering arbitration as an alternative to litigation, then it is essential that the clients understand exactly what they are signing up to.

The full judgment in Haley v Haley can be found on BAILII here.

Don't Waste My Time: There are (almost) always alternatives to going to Court

It is never pleasant when a Judge criticises you in Court, particularly in front of your client and the other side and their legal team. Even if, as a solicitor, you have the cushion of a barrister taking the brunt of the punishment it is an experience to be avoided if at all possible. It must have been an uncomfortable day in Court for those representing the parties in Re B (A Child) (Unnecessary Private Law Applications) [2020] EWFC B44.  The matter was considered by His Honour Judge Wildblood QC who was considering a appeal of a decision made by a Legal Adviser for disclosure of 5 years worth of medical records of the mother. HHJ Wildblood QC was quick to clarify that the publication of his judgment was not related to the legal issues of the appeal but rather "to highlight the extent to which court lists are being filled by interim private law hearing that should not require court involvement."

Some reminders:

• A private law case is one which is brought by a private individual, usually a parent of the child in question, whereas a public law case is one involving a local authority, for example, an application for a care order.
• An interim hearing is a hearing listed prior to the final hearing or conclusion of a matter, usually to address an issue that needs to be resolved before the matter can proceed, for example, disclosure of evidence (as in this case).

It is often said that going to Court is a last resort and every effort will be made to resolve matters by agreement.  That can be difficult in cases where there is high conflict or emotion and where any concession can feel like admitting defeat.  HHJ Wildblood QC, however, is making it absolutely clear that certain matters should always be resolved outside of Court and to do otherwise amounts to "an inappropriate use of limited court resources" (paragraph 3 of the judgement) which is contrary to the overriding objective set out in Rule 1 of the Family Procedure Rules 2010. The Judge helpfully gave the following examples of matters which would count as inappropriate applications:

1. At which junction of the M4 should a child be handed over for contact?
2. Which parent should hold the children's passport?
3. How should contact be arranged on a Sunday afternoon?

The Judge stated that those representing parties must steer their client away from bringing such disputes to Court and said that if such matters were litigated then "criticism and sanctions" may follow.

It is clear that everything must be done to try and keep such disputes out of Court including making the consequences of taking the matter before a judge clear to the parties. But what about those cases where even the smallest of issues is impossible to resolve without a third party stepping in to assist? Well there are alternatives and it is important to consider them particularly in light of this recent judicial warning. If negotiations are not working then mediation can be a helpful tool and HHJ Wildblood QC references this towards the end of his judgment. But mediation is not always appropriate particular if there have been allegations of domestic abuse. Another option is arbitration. 

Arbitration involves a third party selected by the parties (usually a practising barrister or judge) who will consider the issues and make a binding decision. Arbitration can be used to resolve all matters in dispute it should not be forgotten that smaller issues, such as those complained of by HHJ Wildblood QC can also be resolved through arbitration. The parties are in control of the process and it may even be possible to have the matter resolved without the need to attend a hearing. Whilst the parties will have to meet the cost of the arbitrator, considering the possible costs of a court hearing (in Re B the costs ran to thousands of pounds) it could be a more cost effective process and will certainly be a quicker way of reaching an outcome which would allow the matter to proceed and avoid taking up precious Court resources.

It would therefore be prudent to keep Re B in mind when considering whether to take an interim matter to court in private law proceedings as, not only are you likely to be criticised by the judge, but there could be a lot more lost than simply your client's preferred junction of the M4 for handovers.

What are your thoughts? 

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.

Standard of Proof: When Non-Payment Means Prison

When any Court makes a decision to issue a custodial sentence it does not do so lightly.  If a person’s freedom is at risk then a high level of proof is required to justify removing that freedom.  In family cases, a custodial sentence can be issued if, for example, one party is in contempt of Court by failing to provide information under a Court Order or by failing to make payments in accordance with the terms of a financial order.  The Court will always give the party in contempt an opportunity to purge themselves of that contempt by providing the information or making the payment within a reasonable deadline.  If the party still does not comply then a custodial sentence can be imposed.  In the case of non-payment the payee can make an application for a judgment summons and the Court will consider whether a short custodial sentence is appropriate for the defaulting party. The Court will not take such a step unless it is satisfied that the defaulting party has the means to pay, or had the means when the payment fell due, and has wilfully or neglectfully not paid. One might expect the same high standard of proof to apply to this test as in criminal proceedings however that is not the case. 

In the case of Magliaccio v Magliaccio [2016] EWHC 1055 (Fam), a former wife made an application for a judgment summons in respect of arrears of child maintenance and an unpaid costs order.  The parties were divorced and a financial order had been made in which the husband was to pay the wife maintenance for herself and their child by way of periodical payments.  The husband had failed to pay and arrears of £64,000 had accrued.  The wife had returned the matter to Court for enforcement and it was during those proceedings that a settlement was reached and a further order was made.  The new order stated that the husband was to pay a total of £19,000 consisting of £13,500 for the outstanding maintenance payments and £5,500 towards the wife’s costs.  There was also to be continued child maintenance of £1,150 per month with maintenance for the wife dropping to a nominal level.

 

The husband paid the £13,500 for the arrears but did not pay the sum ordered for the wife’s costs.  He also took it upon himself to reduce the periodical payments for the child below the level ordered.  The wife once again returned the matter to Court and by the time it came before Mr Justice Mostyn further arrears of £4,100 had accrued.  The husband did provide an explanation, by way of email, as to why he had not made the payments. He claimed that he was facing financial hardship because he was soon to be made redundant and because he had recently remarried. He also thought that he should not have to pay maintenance for the month that the child visited him. Significantly, the husband failed to supply any evidence to substantiate his position.

Mostyn J was not impressed. He said, referring to the husband’s e-mails: 

“These writings show a profound misunderstanding of obligations under an Order of a Court of law.  An Order of a Court of law which provides the child periodical payments is not some indicative suggestion; it is a judgment that must be complied with.

By the husband’s writings he seems to believe that because he has in mind that there are circumstances which might justify a variation application that he is entitled unilaterally to reduce the payments to what he thinks is just; not what the Court has determined to be just. This is completely unacceptable and if such behaviour were to be tolerated it would strike at the very heart of the rule of law.” (paras 17 & 18)
 

Mostyn J went on to consider the legal position in relation to the judgment summons for non-payment of periodical payments.  Specifically, he considered Section 5 of the Debtors Act 1869 which sets out that a person may only be punished by imprisonment in relation to certain specified unpaid debts. Mostyn J satisfied himself that non-payment of periodical payments ordered in the context of matrimonial proceedings were enforceable in this way.  This was by virtue of paragraph 2A ofSchedule 8 of the Administration of Justice Act 1970.

 

Mostyn J had previously considered this very issue in the case of Bhura v Bhura [2013] 2 FLR 44 in which he noted that the Court of Appeal had provided principles to consider in the case of Karoonianv CMEC [2012] EWCA Civ 1379 which he was bound to follow. He specifically identified two principles as being relevant which he set out are set in his Judgment.

These were:

“It is essential that the Applicant adduces sufficient evidence to establish at least a case to answer. Generally speaking, this need not be an elaborate exercise.  Proof of the Order and of non-payment will likely give rise to that inference which establishes the case to answer”; and

“If the Applicant establishes a case to answer and evidential burden shifts to the Respondent to answer it if he fails to discharge that evidential burden then the terms of Section 5 will be found proved against him or her to a requisite standard”.

(para. 23)

This may seem straightforward and sensible in light of circumstances where there has clearly been a failure to pay.  However, in the very recent case of Prest v Prest [2016] 1 FLR 773 Lord Justice McFarlane made some comments which brought these principles into doubt.

 

McFarlane LJ’s concern was that when considering issuing a custodial sentence for non-payment it was not sufficient to rely upon findings in family proceedings as these would have been made to a civil standard of proof (balance of probabilities) rather than a criminal standard (beyond reasonable doubt).  McFarlane LJ pointed out that if the case to answer had been proven then it must be decided whether the Respondent has had since the date of the Judgment the means to pay the sum due and whether he had refused or neglected to pay the sum.  He said that this should be proved to the criminal standard and that the burden of proof should at all times remain on the Applicant.  He went even further to say that the Respondent could not be compelled to give evidence. 

 

Mostyn J considered McFarlane LJ’s comments and rejected them outright.  He pointed out that the consequences of McFarlane LJ’s approach would be that every fact would need to be proved from scratch to a much higher standard than had been required in the original proceedings.  Mostyn J satisfied himself that he had relied on binding principles from the Court of Appeal and relied on comments from Lord Justice Richards who had, in Karoonian v CMEC, considered the issue from a human rights perspective. He stated that, in cases where there was clearly a case to answer there would be an evidential burden on the Defendant to answer it and that was unobjectionable to Article 6 (referring to the right to a fair trial as set out in the European Convention on Human Rights).  In following this approach Mostyn J made it quite clear that the criminal standard of proof is not required in order to make a committal order for a breach of non-payment of periodical payments in matrimonial proceedings.

 

It is difficult to see how MacFarlane LJ’s approach would not bring the entire system of enforcement to a grinding halt. It would lead to extensive enforcement proceedings that could require evidential investigation above and beyond what had been required to make the original order, a re-trial to a higher standard.

 

Perhaps the nature of financial evidence in family proceedings is also relevant. In the earlier enforcement proceedings, the husband had provided the evidence which the Court had relied on to determine that the husband did indeed have the means to pay the maintenance, his Form E. The husband had completed this himself and signed a statement of truth to confirm the contents were accurate. The husband had disclosed in this form that he held significant funds and the email evidence he had presented prior to the judgment summons hearing did nothing to address that but simply stated that he did not think he should pay because of an impending redundancy and further financial hardship by virtue of the fact that he had recently remarried. Mostyn J therefore had no hesitation in imposing a suspended 14 day custodial sentence on the husband.

 

Mostyn J has given a definitive answer on the issue of the burden and standard of proof in these circumstances. However, should care be taken when considering how to deal with these issues particularly in light of the increase in Litigants in Person who might not appreciate the evidential requirements on them or the serious consequences of failing to discharge that burden? The husband in this case was unrepresented and had presented a case without due reference to the legal principles being considered. He may have had “a profound misunderstanding” of the obligations under a Court Order but had he received legal advice he might have been able to correctly address these and avoid the committal order being made against him. Again, this needs to be balanced against the unquestionable need to ensure that parties comply with Court Orders.

 

As usual, comments are welcome.

GUEST POST No Fault Divorce: the Australian Experience

by Anna Parker
Nicholes Family Law, Melbourne, Australia

In the context of the ongoing debate about the introduction of no fault divorce, it may be instructive to reflect on the experience in Australia, where a no fault divorce system, with similarities to that presently before the House of Commons, has been operating successfully for many years.

Australia has had no fault divorce since the commencement of its Family Law Act 1975 on 5 January 1976. The sole ground for divorce in Australia is that the marriage has broken down irretrievably. That ground can be established if, and only if, the court hearing the application for a divorce order is satisfied that the parties separated and thereafter lived separately and apart for a continuous period of not less than 12 months immediately preceding the date of the filing of the application. Either party to the marriage can unilaterally bring about a separation.

The granting of a divorce order is almost automatic upon an application being made following 12 months’ separation, subject to a small number of exceptions, including that the court will not make a divorce order if it is satisfied that there is a reasonable likelihood of cohabitation being resumed, and a requirement that the court consider whether proper arrangements in all the circumstances have been made for the care, welfare and development of any children of the marriage who have not attained the age of 18 years.

An application for divorce may be made by one party to the marriage or by both parties jointly. Where a sole application is made, it is necessary to prove that the application has been served on the other party, but that party need not participate. Divorce applications are dealt with by way of a short, largely administrative court hearing. Where there are no children under the age of 18 or where a joint application is made, a court appearance is generally not required at all.

There is no role for fault-based allegations in divorce applications in Australia. Conduct is not legally relevant to the application and the process provides no scope for the airing of allegations of poor behaviour or marital misconduct. As such, the process enables parties to end their marriages in an accessible, dignified and non-adversarial manner which respects their rights to autonomy. The no fault divorce regime in Australia does not invite finger-pointing, cause humiliation or facilitate an increase in hostility which could damage financial negotiations and, more importantly, poison co-parenting relationships. The absence of disputes as to marital fault in the context of divorce applications is also beneficial in terms of the efficient use of court time and resources and the limited cost, both economic and emotional, to the parties. Although disputes between former spouses continue to be played out before the courts in the context of applications concerning financial and parenting matters, these disputes are not exacerbated by fault-based allegations in the context of divorce applications.

No fault divorce was controversial when it was first introduced in Australia and was considered by many to be a radical step. However, its operation has been successful and calls for a return to a fault-based system are now few and far between.

 Anna Parker is an Accredited Family Law Specialist and a Partner at Nicholes Family Lawyers in Melbourne, Australia (www.nicholeslaw.com.au).

UPDATE: No Fault Divorce

I first wrote about no fault divorce on this blog in June 2012 (you can read my original post here).

Despite there being continued support from the family law community for this reform we are now in 2016 and spouses still have to assign blame by either citing their partner’s adultery or bad behaviour in order to be able to issue a divorce petition immediately. The alternative is to separate and wait two years before filing a petition which both parties consent to. This is not appealing for those wanting to move on with their lives.

It is difficult to see how anyone could support the current system. Even the most anodyne of accusations can increase hostility which can damage the parties’ ability to communicate constructively, (a significant problem if there are children involved), reduce the chances of reaching an amicable financial settlement and increase legal costs. 

No fault divorce could go a long way to improving matters and there may be change on the horizon. Today (Friday 22 January 2016) the House of Commons is debating a private members bill introduced by Conservative MP Richard Bacon which would allow for a joint petition to be filed immediately when both parties agree that the marriage or civil partnership has broken down irretrievably.

The Bill would amend the Matrimonial Causes Act 1973 and The Civil Partnership Act 2004. It would also stipulate a minimum period of 12 months between the granting of decree nisi and decree absolute as opposed to the 6 weeks for divorcing on other grounds. Still, waiting 12 months for the final decree in a divorce must be better than waiting two years before you can even issue a petition. In addition, a final financial settlement could be negotiated and approved by the court during that time, providing the parties with better certainty as to their futures.

A link to the No Fault Divorce Bill can be found here.

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!

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.

The Blackest of Arts: Calculating compensation claims on divorce.

Word count: 1,224
Average time to read: 5 minutes

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.

Shooting Tigers in a Barrell: Or what not to do with a draft judgment?

Mr Justice Coleridge has ruled on a preliminary issue in financial remedy proceedings which involves a trust set up to protect tigers in China. The case is Quan v Bray [2014] EWHC 3340 (Fam) and the judgment can be found here. Chinese Tigers South Africa Trust was set up in 2002 through the efforts of wife, Li Quan, and husband, William Bray, working together with the Chinese government and various other parties. The couple were initially devoted to the plight of tigers in China and poured most of their matrimonial funds into the project. The relationship broke down and divorce and financial proceedings were issued by the wife. The wife then claimed that the purpose of the trust was not only to save tigers but also to support the couple financially. She argued that the trust, which held nearly £25m of funds, was effectively a post nuptial settlement which could be taken into account in the financial remedy proceedings.

The husband objected, as did the trust and the other interested parties. No doubt the tigers would have had something to say about this as well! Mr Justice Coleridge’s judgment provides guidance on the treatment of post nuptial settlements and in particular settlements that might not have been nuptial in nature when they were set up but which have become nuptial due to the intentions of the parties and actual use of funds from the trust. After hearing the parties in December 2012 and again in June/July 2013 in what totalled over three weeks of Court time, Coleridge found against the wife and concluded that the trust was not nuptial in nature and that there had been no intention for the parties to benefit from the trust.

As is not uncommon, Coleridge J provided his judgment to the parties in draft form on 24 July 2014 and gave the parties until 05 September 2014 to come back to him with any minor or typing amendments before the judgment was to be formally handed down. This gave the wife 5 weeks review the judgment and rather than just looking for spelling mistakes the wife used this time to prepare a 43 page “Barrell” application attacking all of Coleridge J’s findings and conclusions and asking for the judgment to be re-written.

What is a Barrell Application?

The term Barrell Application derives from the case of Re Barrell Enterprises [1972] 3 All ER 631 in which it was established that, whilst there was jurisdiction to alter a judgment prior to the judgment being sealed, it should only be done in exceptional circumstances. This test was considered and developed by the Supreme Court in L and B (Children) [2013] UKSC 8 (20 February 2013) which involved another family case where the judge changed her judgment of her own volition after it had been communicated to the parties but before it was sealed (as opposed to being asked to do so by the parties). The Supreme Court indicated that in exercising discretion when faced with such an application the Court should be guided by the overriding objective to deal with the case justly and consider the specific circumstances of each case. Barrell applications are not common and successful Barrell applications are ever rarer. Even in Barrell the judge did alter the wording of his judgment but not the overall decision. 

As Coleridge J puts it in the postscript to his judgment in Quan v Bray a Barrell application should only be used “where some particular fact or evidence has obviously been omitted, overlooked or has changed since the hearing”. He went on to clarify that it “does not afford a party the right to invite the court to start again from scratch and "have another go" at finding for them based on an entire re-arguing of the case.”

So was the wife right to try proceed with the Barrell application and in doing so exploring all options to have her case considered, or did she cross a line and misuse the legal application? Coleridge J was certainly not convinced and in fact found that the additional submissions, which totalled 99 pages once the other parties had had the opportunity to respond, only fortified his original findings and conclusions. It would seem that the appropriate avenue for the wife would be either to accept Coleridge’s conclusions or appeal.