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Financial Remedies Update

1 Nuptial agreements after Radmacher

1.1 The Supreme Court dismissed Mr Granatino’s appeal against the Court of

Appeal decision, effectively limiting his s 25 award to an amount sufficient to

clear his debts and buy a car, whilst allowing a quasi-Schedule 1 award. This

gave him a £2.5m housing fund for a home here and an additional fund for a

property on the continent. Both these homes were to be held in trust and would

revert to Ms Radmacher once the children had reached 22.

1.2 The Supreme Court held (by a majority of 8 to 1, Lady Hale dissenting):

1.2.1 the Privy Council had been correct in Macleod to reject the submission that

nuptial agreements should be presumptively dispositive of the disposal of a s 25

claim;

1.2.2 nevertheless, “the court should give effect to a nuptial agreement that is freely

entered into by each party with a full appreciation of its implications unless in the

circumstances prevailing it would not be fair to hold the parties to their

agreement”;

1.2.3 at the same time, it approved “I am certain that English courts are now much

more ready to attribute the appropriate (and, in the right case, decisive) weight

to an agreement as part of ‘all the circumstances of case’ ... Upon divorce, when

a party is seeking quantification of a claim for financial relief, it is the court that

determines the result after applying the Act. The court grants the award and

formulates the order with the parties’ agreement being but one factor in the

process and perhaps, in the right case, it being the most compelling factor ...”;

1.2.4 and it also suggested, in relation to separation agreements, that Macleod was

correct in holding that the court should be looking for a change in circumstances

which rendered the agreement ‘manifestly unjust’;

1.2.5 the rule that ante-nuptial agreements were void as against public policy was no

longer valid. However, whether or not they were valid contracts was a red

herring in the context of a s 25 claim;

1.2.6 to carry full weight, both must enter into it of their own free will, without undue

influence or pressure and informed of its own implications [68]. Independent

advice and full disclosure are designed to ensure this. The question is not

FLBA Financial Remedies Update 2011 -1- Michael Horton

whether there was no independent advice or no disclosure. The question is

whether there was any material lack of disclosure, information or advice. The

Court of Appeal had been correct in their approach on this issue [69].

1.3 In considering its new test at 2.2.2 above, the Supreme Court considered a

numbers from paras 77 to 82 as matters which would be relevant to the court’s

evaluation on fairness. In essence, it would be unlikely to be fair to attempt to

contract out of needs or compensation based provision, but there was nothing

inherently unfair about contracting out of sharing non-matrimonial property [79].

1.4 Since the decision, the Law Commission has produced a discussion paper on

‘Marital Property Agreements’. It was seeking responses by 11 April, and was

considering options including formalities and safeguards, what effect the

agreement should have (cast-iron or only presumptively dispositive), and the

extent of the assets to be governed by qualifying nuptial agreements.

2 Bankruptcy and financial remedies

2.1 Bankruptcy and the order for sale

2.1.1 Suppose that Mr and Mrs Smith own their matrimonial home as tenants in

common in equal shares. They agree an order which involves the sale of the

home and a split 80:20 in her favour. Their lawyers use the standard Resolution

Precedent:

“The property known as 27 Acacia Avenue shall be forthwith placed on the open

market for sale and the following consequential provisions shall apply ...

[provisions re marketing agents, price etc]

(e) the net proceeds of sale [being ...] shall be paid as to 80% to Mrs Smith and

as to 20% to Mr Smith.”

2.1.2 The order is made by the court on 5 September 2011. The decree is made

absolute on 7 September 2011.

2.1.3 Mr Smith is made bankrupt on 3 October 2011. The sale completes on 12 October

2011.


2.2 Is Mrs Smith entitled to 80% of the proceeds of sale, in reliance on the order? Or

is she only entitled to 50%, as asserted by Mr Smith’s trustee in bankruptcy, who

says that the beneficial interests remained at 50:50 until the sale completes, so that

Mr Smith retained a 50% interest when he was made bankrupt?

2.3 HHJ Cooke found for the trustee in Warwick v Yarwood [2010] EWHC 2272 (Ch).

He held that the adjustment of beneficial interests takes place only on completion

of sale. Arguably this decision was obiter as in Warwick v Yarwood the sale had

completed before the consent order had been approved.

2.4 A way of avoiding this conclusion is to draft the order for sale differently: “The

property known as 27Acacia Avenue shall henceforth be held by the parties on

trust for them as tenants in common for Mrs Smith as to 80% and for Mr Smith

as to 20%, and the property shall forthwith be placed on the open market for sale,

and ...”

2.5 Annulment of bankruptcy

2.5.1 If you are going to apply to undo the bankruptcy:

C do it early, before the trustee has incurred significant costs in administering the

bankrupt’s estate, as

C the applicant will need to make provision for the trustee’s costs of administering

the estate. If not, the court will not annul the bankruptcy order.

2.5.2 These are highlighted by Mekarska v Ruiz & Boyden [2011] EWHC 913 (Fam).

Here W had obtained a s 37 injunction against H. She had also obtained an

occupation order ousting H and preserving her matrimonial home rights beyond

decree absolute. H later admitted he had disposed of funds in breach of the s 37

injunction, but with the final ancillary relief hearing pending, he applied to make

himself bankrupt. His statement of affairs was not exactly inaccurate, although

it was far from full and frank. When W discovered H had been made bankrupt,

she threatened to apply for an annulment but did not do so.

2.5.3 Before the DJ, W conceded a sale of the fmh and simply sought an order that she

receive the entire surplus in the estate. Against a fmh worth £270,000 free of

mortgage, and the amount required to discharge the bankruptcy of £117,000 (as


against the original bankruptcy debts of £50,000 in December 2007), W would

have had about £150,000.

2.5.4 After the hearing, W changed her mind and withdrew her co-operation from the

sale. She applied in person for permission to appeal out of time against the

ancillary relief order, and was given permission by a Recorder. In due course,

she applied to annul the bankruptcy order. She had new lawyers for a period but

then sacked them. By the time of the hearing in March 2011, the amount required

to discharge the bankruptcy was £260,000: W would only receive anything at all

if her claim was met before any payment was made to the trustee.

2.5.5 Jackson J held:

• neither the occupation order nor the freezing order prevented the bankruptcy

order taking effect

• an annulment could only be granted on the basis that provision was made for the

trustee’s fees

• H had been unable to pay his debts when he petitioned and his statement of

affairs had been accurate

• the appeal against the district judge’s order was dismissed – he had made no

error (indeed he did what W invited him to do). The Paulin decision was not a

Barder event, although if the annulment application had been successful, the

court would have taken it into account on the appeal

• a bankruptcy court which is aware that a debtor issuing a bankruptcy petition is

undergoing divorce proceedings should adjourn to allow notice to be given to the

spouse

2.6 On the subject of s 37 injunctions/ freezing orders, Mostyn J in ND v KP (Freezing

Order: Ex Parte Application) [2011] EWHC 457 (Fam) [2011] 2 FLR 662 laid down

the law:

C to obtain the order, there must be before the court a demonstration of objective

facts that evidenced the likelihood of the movement or dissipation of assets with

the intention of defeating the applicant’s claim; contemporaneous evidence was

needed and unsupported statements or expressions of fear had little weight;

C an application for ex parte relief should be made only where there was positive

evidence that to give notice would lead to irretrievable prejudice being caused

to the applicant;


C where the applicant had not acted with the high duty of candour required at an

ex parte hearing, the court had a discretion to discharge the order and/or make

a fresh order.

3 The fall-out from Imerman: Imerman [2010] EWCA Civ 908 [2010] 2 FLR 814

3.1 Remember the so-called ‘Hildebrand rules’. Are they in fact not quite dead?

3.2 The headlines

3.2.1 H was entitled to the return of his confidential documents, any copies and any

notes made by W and/or her solicitors (subject to a complete set being retained

by H’s matrimonial lawyers) [147]. Likewise W and her solicitors were forbidden

to use any of the information they have obtained through reading the seven lever

arch files [150].

3.2.2 H could not obtain an order erasing W’s memory [169]. So, if W can recollect the

contents of the documents by the time questionnaires were due to be filed, she

would be entitled to deploy that knowledge to challenge the accuracy of H’s

disclosure [169].

3.2.3 The court might think it right and indeed in appropriate circumstances necessary

to enjoin W from continuing to instruct solicitors to whom confidential

documents and/or information had been passed [121].

3.2.4 The ancillary relief judge has a discretion whether or not to admit highly relevant

evidence obtained in an underhand manner [171] [172].

3.2.5 Anton Piller search orders should be no more difficult to obtain in family cases

than in other divisions of the High Court [133].

3.2.6 The Hildebrand rules simply have no legal basis: there are no such rules. The

rule in Hildebrand as to the time when copies of the other spouse’s documents

should be disclosed remained good law [120]. There is therefore no basis of any

possible defence to a claim in tort or breach of confidence [117].

3.2.7 Don’t worry: the court can always draw adverse inferences [124] to [126]!

3.3 In practice

3.3.1 The dangers of a spouse resorting to self-help disclosure remain. They include

liability for damages in tort (for trespass to goods or conversion), criminal


liability in relation to offences under the Data Protection Act 1994 and the

Computer Misuse Act 1990.

3.3.2 Are the pilfered documents ‘confidential’? Did H have an expectation of

confidentiality in relation to them? Unless there is an ‘iniquity’ point (see below),

this will depend on the nature of the documents, where they were kept and in

what circumstances, and how open or otherwise the parties have been with their

finances during the marriage: confidence does not depend on locks or keys.

3.3.3 If so, the expectation is that the documents will have to be returned, together

with any copies or any notes made from them. The lawyer will not wish to know

anything for fear of being prevented from being able to continue to act.

3.3.4 Alternatively, without looking at them in detail but counting the number of

pages, an undertaking could be sought from the other spouse’s lawyer that once

returned the original documents would be kept pending resolution of the s 25

claims (effectively preserving the documents and thus allowing them to be

looked at in the event your client is dissatisfied with the other spouse’s form E).

3.3.5 No confidence in an inquity. You cannot use the law of confidence to suppress

evidence of wrongdoing. If the document is entitled ‘Mr Smith’s secret plan to

hide assets from Mrs Smith and the court’, he cannot prevent W using it in the

proceedings or taking and keeping copies.

3.3.6 After forms E, where the pilfered documents clearly show H’s disclosure in form

E is false, the iniquity point will apply. So apply the Hildebrand rules (even

though they don’t exist). Take copies but do not retain originals longer than

necessary to take copies. Disclose the documents on request or if earlier, on

serving your client’s questionnaire.

Cohabitation

4 The orthodox view has been stated in the 1980s, 1990s, and again in the first

decade of this century. The court cannot equate the cohabitation of a person

post-divorce with that person’s re-marriage. Where that person has the benefit

of a spousal maintenance order, her cohabitation will not automatically bring that

order to an end. Instead, it will simply be a reason for a downward variation: it

goes only to quantum not term. A cohabitee has no legal obligation to support

the payee and can leave at any time. The court should strive to discern the

realities of the situation. The extent to which they contribute or ought to


contribute to the payee’s household expenses will be relevant in ascertaining her

real net income needs.

4.1 In K v K (Periodical Payment: Cohabitation) [2005] EWHC 2886 (Fam) [2006] 2 FLR

468, Coleridge J made a plea to change the orthodox approach:

“[2] In the 35 years since the enactment a social revolution has taken place. The

concept of cohabitation is now as normal, commonplace and acceptable as

marriage. At every level of society and amongst all adult age groups people

cohabit without a second thought. It carries no social stigma whatever. Nor for

that matter does the birth of children outside marriage.

“[3] In these circumstances should not the financial consequences of

cohabitation (following a previous divorce) be the same as the financial

consequences of a further marriage; namely that any then existing order be

discharged or, one way or another, no longer remain effective? That is the issue

which lies at the root of this application by a husband to discharge or reduce to

a nominal order the periodical payments order made against him at the time of

his divorce in 1998. ... “

4.2 Despite Coleridge J’s urgings, in H v H (Financial Provision) [2009] EWHC 494

(Fam) [2009] 2 FLR 795, Singer J took a more conservative view of the effect of

cohabitation. The case was not a variation case, and H earned £435,000 net pa.

W’s budget was put at £104,000, and H’s at £273,000, although the judge thought

neither figure helpful. Singer J held that ‘needs are not the only or the strict test’.

He ordered joint lives periodical payments at £125,000 pa for W and £15,000 for

the child.

4.2.1 This was despite the fact that it emerged at trial that a man called L had spent

most of his ‘January leisure hours and nights’ at W’s home, and only in cross-

examination did she reveal that she was 17 weeks pregnant by him. However,

there was no evidence to suggest L made any effective or material contribution

to W’s living expenditure on any sustained basis. Their expected child was likely

to increase their mutual dependence, but would not inevitably do so. They might

or might not cohabit (a term Singer J described as an ‘unsatisfactory word and

concept, vague as to quality and duration and not a reliably valid indicator of

anything long term’). L’s presence on the scene, and the presence of their child,


did not affect the quantum of capital division at all (that much was fairly

uncontroversial, based as it was on sharing and not needs). While

sympathetically attracted to the views of Coleridge J in K v K, the Court of

Appeal cases were binding, and Coleridge J’s views were ‘heretical’. Change had

to come from Parliament or a court with authority to make new law or change

the old.

4.2.2 The Court of Appeal allowed H’s appeal in H v H, now reported as Grey v Grey

[2009] EWCA Civ 1424 [2010] 1 FLR 1764. It held that the judge should have

made a finding as to whether W and L were a couple. The evidence was clear

that they were, and he was then obliged to have gone on to investigate and

assess the financial consequences of that development. Whilst there was no

evidence of L making any financial contribution, that was not the end of the

matter: “There is in these cases an obvious motive to avoid any pooling of income

to meet expenditure. The real question will generally be not what is he

contributing but what ought he to contribute. ... The judge could not be fair to

[H] as the payer without investigating whether [L] was making any financial

contribution to the household and, if not, what was his capacity to make

contribution. Mr Pointer said that [L], resident within the Irish Republic, was not

a compellable witness. That circumstance did not prevent investigation. The

judge had only to require [W] as applicant to produce evidence of [L]’s means or

risk the drawing of adverse inferences.”

4.2.3 The court also took the opportunity to over-rule Coleridge J in K v K (above) and

re-assert the orthodox view as set out in Atkinson and Fleming. Pre-marital

cohabitation would only make a difference in a small range of cases, such as “the

marriage which is on the edge of being short and which may be rescued from

that label by adding in a substantial period of pre-marital cohabitation”. There

was no basis for equating post-marital cohabitation with re-marriage, as W

would have no legal entitlement to any financial contribution from her new

partner, either during the relationship or on its breakdown. Until such a new

claim was created, ‘the argument ... does not run’: ‘the approach indicated by this

court in Fleming v Fleming remains sound and is sufficiently flexible to enable the

court to do justice and to reflect social and moral shifts within our society.’

4.2.4 As Wall LJ added, ‘Post-separation cohabitation with a third party is a relevant

factor for the court to take into account when considering the level of

maintenance pending suit and/or periodical payments which the cohabiting

spouse or former spouse should receive from his or her spouse or former spouse.


In some cases, the fact of cohabitation will weigh heavily in the scales: in others,

it will not.”

4.2.5 The impact of the relationship was considered by Singer J in Re Grey (No 3) [2010]

EWHC 1055 (Fam) [2010] 2 FLR 1848. H had applied to vary down on the basis

of W’s relationship with L, and W had applied to vary up on the basis of H’s

increased income. Singer J held that about a year after the relationship began

between L and W (ie when it was clear that W was expecting L’s child), it would

be fair to treat them as a couple, with the result that from that point L should

have been contributing to her domestic economy. L retained his own home, and

it should not be assumed that L and W would actually live together.

4.2.6 Singer J rejected H’s submission that W’s maintenance should be reduced to

nominal only. No reduction was justified further than that necessary to take

account of what L ought to be contributing. W was entitled to continue to have

the standard of living envisaged by the original order (via a combination of H

and L). The fair amount L ought to contribute was assessed at €55,000 between

December 2007 and the beginning of 2009, which W was to repay to H. From

2009 onwards, L’s fair contribution would be €16,000 pa, in the light of his

reduced income. He assessed that figure (i) by calculating one half of L’s income

after payment of his mortgage and expenses paid for his and W’s child; and (ii)

cross-checking against one half of W’s ‘establishment’ costs in her current

accommodation (L did not spend all his time there). Despite, H’s income having

more than doubled since, W’s maintenance order was not to be increased above

the original order, but would be reduced by the amount of what L ought fairly

to be contributed (with another reduction to save tax by loading maintenance

onto the child maintenance order).

Appeals

5 In Kaur v Matharu [2011] 1 FLR 698 [2010] EWCA Civ 930, the Court of Appeal

had to consider the test for admitting evidence on an appeal from a district judge

to circuit judge in ancillary relief proceedings. The applicable rule was r 8.1(3)

of FPR 1991, which allowed the appeal court to look at fresh evidence if “in all

the circumstances of the case it would be in the interests of justice to do so.” The

fresh evidence sought to be adduced related to the intervenor’s claim made

within ancillary relief proceedings.


5.1 The Court of Appeal held that the principles in Ladd v Marshall [1954] 1 WLR 1489

did not apply as strictly in family appeals. There was plainly a ‘latitude for

relaxation’ in relation to children cases; it ‘may be there’ in ancillary relief cases,

‘albeit not necessarily with the same liberality’. But the fresh evidence went to

the ToLATA aspect decided within the family proceedings. There was no

possible argument for relaxing the rules in relation to that aspect of the case. The

evidence could have been obtained with reasonable diligence for the trial, and so

did not satisfy the Ladd v Marshall criteria. Even where those criteria were

relaxed in family cases, the discretion to adduce fresh evidence on appeal was

still to be exercised sparingly.

5.1.1 The new rule is FPR 2010, r 30.12(2):

“Unless it orders otherwise, the appeal court will not receive –

(a) oral evidence; or

(b) evidence which was not before the lower court.”

5.1.2 This is a straight copy of CPR 52.11(2). The Practice Direction to Part 30 is silent

as to how the court might decide to ‘order otherwise’. Presumably the slightly

more liberal rules survive. The counter argument is that the rules have been

brought into line with CPR 52 and there should be uniformity of approach as to

how the same rule is applied in all contexts.

5.2 Part 30 of the FPR now provides that all appeals from DJ to CJ/ HCJ require

permission. There are 21 days within which to file a notice of appeal.

5.2.1 The PRFD has not been applying the new rules properly. The expectation is that

an application for permission to appeal (other than one made to the trial DJ) is

referred to a High Court Judge on paper (just as would be the case in an appeal

to the Court of Appeal). However, there are reports that, even before permission

has been granted or even considered on paper, the ‘appeal’ is being listed for

directions: see O v O, Baron J, 14 July 2011 (Family Law Week).

Updating evidence

5.3 In P v P (Financial Relief: Procedure) [2008] EWHC 2953 (Fam) [2009] 1 FLR 696,

Baron J heard a preliminary point in an appeal. She granted permission to W to

adduce further accountancy evidence as to the value of the family shareholding.


She said: “... but if the learned judge finds that the district judge was plainly

wrong, where is the case to go from there? It is set down for 4 days. If the judge

reaches a conclusion that the district judge was wrong then he/she will have to

listen to submissions as to the proper outcome of this case. The parties have

always agreed that the assets are to be split equally and that the case merits a

clean break. ... If the judge finds the district judge was plainly wrong, it would

seem to me that, in fairness, the judge should be in a position to make a

determination as to the price to be paid.”

Barder appeals

5.4 Richardson v Richardson [2011] EWCA Civ 79 [2011] 2 FLR 244 was another appeal

which was put on the alternative bases of a supervening Barder event and a

mutual mistake at the time of trial.

5.4.1 After a 46 year marriage, the judge in June 2009 heard the ancillary relief claim.

H and W were, like the Whites, both marital and business partners in every sense.

The net assets were c £11m. They both accepted equal division, and the issue was

how to effect it. The judge ordered W to have two properties and ordered a

further lump sum of £3.35m in instalments. In total she received £5.18m as

against H’s £5.73m. W was to resign from the partnership and H would

indemnify her re all partnership liabilities. The departure from equality was

2.5%: W’s 47.5% was justified on the basis that H retained risk-laden assets. The

order was perfected on 25 September 2009.

5.4.2 In July 2004, a young girl aged 2 had fallen out of a first-floor window of one of

the partnership’s properties. She suffered serious injuries including brain

damage. A claim was issued against the partnership in December 2008. Both

parties were aware of the claim when the ancillary relief claim was being dealt

with and the fact that it might involve a substantial liability. They both assumed

that it would be covered by their insurance.

5.4.3 On 4 November 2009, W died of a heart attack. On 18 December 2009 H learnt

that the partnership’s insurers had avoided their policy. In February 2010 H

applied for permission to appeal out of time. He relied on (i) W’s death, and (ii)

the insurers’ avoidance of the policy.

5.4.4 The Court of Appeal rejected the claim based on W’s death. The death of a party

can be a Barder event, but usually only where the deceased’s future needs had

been a central or critical factor in assessing the quantum of the s 25 award. This


was a sharing case. W had earned her share, and had there no been no ancillary

relief award, her estate would have a half share in ToLATA or Partnership Act

proceedings. Her death was not a Barder event.

5.4.5 H’s case on the insurance was (i) they both assumed that they were fully covered,

whereas the claim was for £3m and their cover was limited to £2m, and (ii) the

insurers had avoided policy so that they were wholly uninsured. The Court of

Appeal rejected (i). The possibility of liability under the claim was a ‘known

unknown’. The limit of cover was not a ‘new event’: ‘the problem’ had been

there all along. He could have discovered the extent of his cover with reasonable

diligence before the order was made. Faced with a known unknown he chose to

proceed without further enquiry, and he could not be heard to say know that he

was mistaken.

5.4.6 However, the avoidance of the policy by the insurers was an ‘unknown

unknown’. It was true that the insurer had not confirmed acceptance of liability

prior to the order being made. But H had no personal knowledge that there was

any possibility of the policy being avoided until December 2009. The Court of

Appeal accepted that there was a vitiating mistake – the parties believed and the

court accepted that the claim was covered, so that the assets were wrongly

believed to be c £11m and not only £9m ish. It was a mistake not a Barder event.

£1m of the sum outstanding to W’s estate would be held and would be subject to

one half of (i) damages payable under the claim; and (ii) costs in defending the

claim and prosecuting claims against the insurer or broker.

5.5 How to challenge ancillary relief consent orders under the new rules

5.5.1 Paragraph 14.1 of the Practice Direction to Part 30 states “The rules in Part 30 and

the provisions of this Practice Direction apply to appeals relating to orders made

by consent in addition to orders which are not made by consent. An appeal is

the only way in which a consent order can be challenged.”

5.5.2 Er, why? We used to be able to use CCR Ord 37, r 1, which allowed the court to

reopen a final decision where ‘no error of the court is alleged’, was often the

route used to challenge decisions based on non-disclosure etc. That rule no

longer exists in family proceedings since 6 April 2011. However, there is rule

4.1(6): “A power of the court under these rules to make an order includes a

power to vary or revoke the order.” This is a copy of CPR rule 3.1(7). The cases

on this rule state that it cannot be used as a route of appeal against a final order.


However, it can be used where the original order was made on the basis of

erroneous information (although this may not always allow the court to reopen

a final order: Roult v North West Strategic Health Authority [2010] 1 WLR 487 [2009]

EWCA Civ 444). Why not then use rule 4.1(6) in a mistake or non-disclosure

case?

5.6 The effect of applying to set aside. In Independent Trustee Services Ltd v GP Noble

Trustees [2010] EWHC 3275 (Ch) [2011] 2 FLR 174, Peter Smith J held:

C where H had wrongfully taken monies from a third party and used them to pay

his obligations under a lump sum order, W was entitled to retain those sums

where she was ‘equity’s darling’, in having had no notice of the third party’s

claim to the funds;

C where W applied to set aside the consent order under which she had received the

above funds on the basis that H had further assets which he had failed to

disclose, her application to set aside did not invalidate her title to the funds she

had already received.

Joinder/ intervention

6 How should the court case manage claims involving third party property claims?

6.1 The standard assumption is that the third party should be joined as an

intervenor. This is particularly so where the financial remedy proceedings are

underway and the third party has not yet brought any proceedings. By joining

the third party, that party is bound by any findings of fact as to the beneficial

interests by issue estoppel. The third party issue should be determined as a

preliminary issue, with points of claim relevant to the property issue and

separate witness statements on that issue (Rossi v Rossi [2006] EWHC 1482 (Fam)

[2007] 1 FLR 790, TL v ML [2005] EWHC 2860 (Fam) [2006] 1 FLR 1263).

6.2 However, that is not the only option. The preliminary issue approach may be

disproportionate. Some courts will move direct to final hearing with the poor

third party having to sit through pure ‘financial order issues’ as well as the

property issue relating to him/ her. Some courts list for FDR in the hope that all

issues can be cracked in one go. The third party might wish to issue separate

proceedings, especially if he or she wished to take advantage of an interlocutory


process available under CPR not available in the family proceedings (eg default/

summary judgment): Gourisaria v Gourisaria [2010] EWCA Civ 1019 [2011] 1 FLR

262, p 268 at [18] per Hughes LJ).

6.3 A mere invitation to intervene can be made under FPR 9.13(1)(c) (the replacement

of r 2.59(3) of FPR 1991). If the third party accepts the invitation, there is no

difficulty: an issue estoppel will arise. However, if the third party declines the

invitation to intervene, he has not been joined and no issue estoppel arises.

Whilst a person who declines the invitation to intervene and who then takes

subsequent proceedings might be met by an abuse of process argument based on

the rule in Henderson v Henderson, this argument is much less clear cut and more

uncertain than the simple issue estoppel point.

6.4 How to join?

6.4.1 Prior to 6 April 2011, this was done in reliance on RSC O 15, r 6(2)(b). In relation

to a person within the jurisdiction, no possible issue could arise. However, in

Gourisaria, Hughes LJ expressed doubts as to whether an order for joinder would

be effective if the non-UK residents whom it was sought to join were to stand on

the absence of jurisdiction of the English court over them ([2011] 1 FLR 262, at 267

[18]).

6.4.2 Of course, RSC O 15, r 16 is no more. Nor can courts rely directly on CPR 19.2

(which allows a court to join a person as a party to civil proceedings if it is

desirable to join in order to resolve all matters in dispute in the proceedings or

there is an issue between new and existing parties connected to the matters in

dispute in the proceedings and it is desirable to join so that the court can resolve

that issue). The CPR do not apply in family proceedings, and unlike the FPR

1991, the new rules do not incorporate the CPR in general.

6.4.3 A possible solution was suggested by the Court of Appeal in Goldstone v Goldstone

[2011] EWCA Civ 39 [2011] 1 FLR 1926. In terms of the new rules, Hughes LJ

considered, obiter, that CPR 19.2 (above) was not directly incorporated by the FPR

2010. There is no express power to join third parties to financial order

proceedings (unlike say, the power in rule 8.8 to join parties to applications under

s 36 of the 1973 Act – alteration of maintenance agreement after death of one

party, or the power under rule 16.2 to join the child as a party to family

proceedings). However, he considered that a power to join may be derived from:


(i) rule 1.4(2)(b)(ii) – active case management includes identifying at an early

stage who should be a party to proceedings; (ii) rule 4.1(3)(o) take any other step

for the purpose of managing the case and furthering the overriding objective; and

(iii) rule 18.3(1)(c) – the Respondents to a Part 18 application notice shall be ... any

other person as the court may direct.

6.4.4 At [71], he opined “Since the 2010 rules say nothing about the principles on

which joinder of third parties (onshore or offshore) should be exercised, it may

be that courts will have recourse by analogy to the principles contained in CPR

19.2 and 6.36 with its Practice Direction 6B. The final resolution of that issue

must however await a decision on the point.”

6.5 Inspection appointments. These are no more. There are now two ways of

obtaining information from third parties.

6.5.1 Orders for disclosure against third parties under FPR 21.2. Much of FPR 21.2 is

taken from CPR 31.17, and the guidance on its use in CPR is likely to be just as

relevant:

C the order may only be made where disclosure is necessary in order to dispose

fairly of the proceedings or to save costs

C ordering disclosure against third parties is the exception not the rule, the

jurisdiction should be exercised with caution, and the court had a duty to ensure

that this intrusive jurisdiction is not used inappropriately even by consent

C the order must list the documents or classes of documents which the third party

is obliged to disclose;

C the order must require the third party to say which documents are no longer in

their control or which are privileged

C the order may require the third party to indicate what has happened to any

documents they no longer have; and

C the order may specify the time and place for disclosure and inspection

C no document may be compelled to be disclosed unless the third party would be

compelled to disclose it at a final hearing

C Costs: under CPR 48.1(2), the general rule is that the applicant must pay the third

party’s costs of the application, and of complying with any order made on the

application. Where the application was unreasonably resisted, the court may

depart from that starting point, but often may simply order no order as to costs.


Where a party’s failure to give disclosure has prompted the application against

the third party, the court might order that party to pay the third party’s costs.

6.5.2 Seeking permission to issue a witness summons returnable other than at a final

hearing under Part 24:

C Under 24.2, a witness summons may require a witness to produce documents on

a date fixed for a hearing or on such date as the court may direct;

C Under 24.3, a party must obtain permission to issue a witness summons for a

person to produce documents at any hearing other than a final hearing;

C a witness summons must give at least 7 days’ notice of the date on which the

witness is to attend court, unless the court abridges time: 24.4;

C the witness may apply to set aside or vary the witness summons;

C the only costs that the witness is entitled to are travel expenses and compensation

for loss of time in accordance with PD24A, though check the cases in the White

Book commentary to CPR 34.3 and M v M (Third Party Subpoena: Financial

Conduct) [2006] 2 FLR 1253.

The relevance of non-matrimonial property

7 This issue has arisen in several recent cases.

7.1 In Jones v Jones [2011] EWCA 41 [2011] 1 FLR 1723, the Court of Appeal allowed

W’s appeal against the blockbuster decision of Charles J delivered in 484

paragraphs. Wilson LJ formulated the issue thus: “When an asset of a spouse -

in this case a husband - represents the proceeds of sale of a company which he

brought into the marriage and built up during it, how is the attribution of part

of the proceeds to the husband’s ownership of it at the date of the marriage to be

conducted for the purposes of the sharing principle and, in particular, does the

exercise of attribution permit focus not only on the value of the company at the

date of the marriage but also on the husband’s personal capacity at that date to

build it up in the future?” That last consideration was dubbed the ‘springboard’

or the latent potential in the company enabling it to increase in value.

7.1.1 The parties married in 1996. There was no child of the marriage but W’s child

from her first marriage was treated as a child of the family. H was 14 years older

than W. He set up his business in supplying equipment to the oil industry in the


North Sea in 1986 and it became D Ltd in 1988. The parties separated in January

2006. In May 2007, he sold the company for a net £25m. Charles J found the net

assets to be £25m. He awarded W £5.4m, of which £400k was designed to meet

her unpaid costs. Charles J had treated only 40% of those sale proceeds as being

marital acquest, of which she should receive half. W argued she should receive

40% of the overall net assets. He rejected that on the basis that 60% of the net

proceeds of sale of the business represented what H had brought to the marriage.

He held that W’s sharing claim might amount to £5.8m, her needs claim only

extended to £4.6m, but that her lower needs claim might inform the application

of the sharing claim to reduce the award overall to £5.4m.

7.1.2 The Court of Appeal held that this last point was wrong. It was confusing and

unhelpful. In applying the principles of needs and sharing, the court was

engaged in separate exercises.

7.1.3 The Court of Appeal held that it was impermissible to seek to capitalise a

spouse’s earning capacity at the date of the marriage and thus excluded from, or

otherwise brought into account in, the sharing principle. This was the case

whether H was a fledgling, fully fledged, or airborne! Charles J had in effect

taken this approach in treating the current value of the company at the date of

the marriage was £15m.

7.1.4 It also held that, in this case, the appropriate approach was to identify which part

of the £25m was reflective of non-matrimonial assets and which part was

reflective of matrimonial assets, bearing in mind a precise division was unlikely

to be either needed or achievable. On the facts, there were no arguments against

sharing the non-matrimonial assets 100% to the contributor and 0% to the non-

contributor, and no arguments against sharing the matrimonial assets equally.

Nevertheless, the result produced by this approach should be tested by

identifying what percentage (less than 50%) of the total assets W should receive

as representing a fair overall allowance for H’s introduction of his company into

the marriage.

7.1.5 In applying that approach, they held:

(i) the company was worth £2m net at the time of the marriage;

(ii) but it contained a springboard or latent potential. A year after the

marriage H was offered £6m to £7m for the company. Even allowing for

caution in the allowance for spring-boards (otherwise every historical


valuation of companies at the date of the marriage would be increased),

the Court of Appeal held that it was then worth £4m (a figure conceded

to be highly arbitrary);

(iii) on top of that, some recognition was necessary to account for passive

economic growth in the company between the date of the marriage and

date of sale;

(iv) Wilson LJ therefore took the view that, despite the argument that H had

actively managed the company during the marriage, it was appropriate

to apply the FTSE All Share Oil and Gas Index to increase the value at the

date of marriage;

(v) that led to a current value of £8.7m;

(vi) rounded up to £9m, that meant the matrimonial assets were £25m less

£9m, ie £16m, and so W’s sharing claim extended to £8m

7.1.6 Applying the overall test percentage as the cross-check, that amounted to 32% of

the overall £25m. 40% sought by W would have been too much. This percentage

was within a fair overall bracket. The award would therefore be £8m (and there

was no need to add the £400k for costs to it).

7.1.7 As to the approach to be taken to allowing for ‘passive economic growth’ on

differing types of assets, see Arden LJ at paras [59-61].

7.1.8 Charles J’s judgment at first instance had sought to introduce more formality in

the construction of financial order cases. Important elements of the case, the

‘building blocks’ ought to be reduced to writing in order to define the issues.

Thorpe LJ in Goldstone was sceptical of the value of this outbreak of quasi-

pleadings. Wilson LJ considered that, in appropriate cases it would be helpful

to identify (i) the issues which each party raised for the court to determine; (ii)

the findings for which each party contended referable to each issue; and (iii) the

evidence on which such findings could be based and on which each party relied.

7.2 In N v F [2011] EWHC 586 (Fam) [2011] 2 FLR 533, Mostyn J took a similar

approach to that taken by the Court of Appeal in Jones, agreeing with the

approach he set out in FZ v SZ and Others (Ancillary Relief: Conduct: Valuations)

[2010] EWHC 1630 (Fam) [2011] 1 FLR 64.

7.2.1 The total assets were £9.7m. H had £2.1m at the time of the marriage in 1993.

Adjusting for inflation it would now be £3.4m. Adjusting for the FTSE100, it


would now be £4.2m. W sought 50%, seeking to share all the assets, on the basis

that her needs claim also amounted to £4.85m. H sought to ‘ring-fence’ part of

the pre-marital monies and offered W £4.17m. It was a sixteen year marriage

with two children aged 15 and 8.

7.2.2 In March 2007, H left the banking sector in which he had been very successful.

He did so with little regret. He now earned £52,000 pa as a school-teacher. H got

out at the right time, turning share options etc into cash on leaving a year before

the crash. Since 2007, the family had been living off capital. Mostyn J rejecting

W’s claims for add backs for various sums she criticised H for spending since

separation:

“In this country we have separate property. If a party disposes of assets with the

intention of defeating the other party's claim then such a transaction can be

reversed under s37 MCA 1973. Similarly, where there is “clear evidence of

dissipation (in which there is a wanton element)” then the dissipated sums can

be added back or re-attributed (see Vaughan v Vaughan [2008] 1 FLR 1108 at para

14). But short of this a party can do what he wants with his money. What is not

acceptable is a faint criticism falling short of either of these standards. If a party

seeks a set-aside or a re-attribution then she must nail her colours to the mast.”

7.2.3 Likewise, he rejected W’s claims that H could and should be working in the

banking sector. “First, if it is alleged that a party is not exploiting an earning

capacity, then it is incumbent to prove that by clear evidence rather than by

anecdotal scraps. I would have expected evidence from an employment

consultant demonstrating that H did indeed have and has a substantial earning

capacity in the financial sector since 2007. ... Fourth, even if W had been able to

show that H had indeed eschewed a high earning capacity I find it impossible to

criticise him for moving into another more happy and fulfilling field at the age

of 55, even if rather lower paid.”

7.2.4 On the law, he rejected the notion that all the court should do where the existence

of non-matrimonial property is proved is merely share the overall assets

unevenly: “that approach simply does not tell anyone what weight is being given

to that factor ... What is the point of [identifying matrimonial and non-

matrimonial assets] if it is then put to one side in favour of a percentage based on

‘feel’?” He considered the approach in Jones was the correct one. The process

should be:


“(i) Whether the existence of pre-marital property should be reflected at all.

This depends on questions of duration and mingling.

(ii) If it does decide that reflection is fair and just, the court should then

decide how much of the pre-marital property should be excluded. Should

it be the actual historic sum? Or less, if there has been much mingling? Or

more, to reflect a springboard and passive growth, as happened in Jones?

(iii) The remaining matrimonial property should then normally be divided

equally.

(iv) The fairness of the award should then be tested by the overall percentage

technique.”

7.2.5 On the facts, he excluded £1m from the sharing principle: the pre-marital wealth

was the bedrock on which the marriage was founded. Against that, the marriage

was long, and the monies were well and truly mingled with other funds,

signifying an acceptance by H to a large extent that the monies would be shared

with W. But for W’s needs, he would have excluded more. This left W with

44.7% of the overall assets. In contrast to Jones, where W had 32% after a 12 year

childless marriage, this was therefore fair overall.

7.3 In Robson v Robson [2010] EWCA Civ 1171 [2011] 1 FLR 751, the Court of Appeal

dealt with H’s inheritance in a more broad-brush manner.

7.3.1 Here there had been a 21 year marriage. There were two children aged 20 and

17. The total assets were about £22.5m, which included £16m from an inherited

estate, and another £2m from an inherited estate in Scottish highlands. The judge

ordered W to receive a lump sum of £8m on or before 1 January 2010, with

interest to run until payment made. He ordered that specified properties were

to be put on the market in August 2009 (to provide the source for these funds).

Charles J also ordered interim maintenance at the rate of £140,000 pa from July

2009 until payment in full.

7.3.2 Although H had sought to argue that the estate should be preserved for his

descendants, Charles J found that he had mismanaged the estate. Despite being

a qualified accountant, the record-keeping was shocking. The parties had lived

beyond their means. H had plundered the inheritance he claimed to be

preserving. W was aware that they had been living on a mismanaged

inheritance. W put her case on the basis of her needs. Her housing needs she put


initially at £2m to £5.5m. He held she needed £5m. On income needs, he held

that, in order to match the standard of living enjoyed during the marriage, W

would need £135,000 to £145,000 pa. She wanted a capitalised maintenance lump

sum and a clean break. Late in the day H offered secured maintenance in an

effort to prevent sale of the estate but did not show how this could be done. The

correct Duxbury sum would be £3m. His award was therefore £8m (recognising

that she owed £600,000 in costs). He satisfied himself that this was fair overall

having regard to the source of the assets and the application of the sharing

principle.

7.3.3 In fact after judgment, it became apparent that W had found a property she

wanted to buy for £2.4m on which she wanted to spend £1.6m in refurbishment.

H did not seek to argue that the award should be reduced at a further hearing

fixed to settle the order and deal with outstanding issues.

7.3.4 H appealed. He contended that the housing and income needs were excessive.

The imposition of interest and interim maintenance was oppressive and led to

double-counting. The judge should have made a secured maintenance order and

not capitalised the maintenance claim. H sought to rely on the fact that the estate

sold for c £2m to £3m less than the value attributed to it by Charles J. The Court

of Appeal admitted the fresh evidence, and also admitted evidence that W had

in fact spent £4.3m on purchasing and improving her new home, which went to

her needs.

7.3.5 Ward LJ held (i) the order for the lump sum was defective. Decree absolute was

on 11 February 2010, so the lump sum order could not take effect on 1 January

2010. Interest could only run from 11 February 2010. The order should have read

payable on or before 1 January 2010 or on the grant of decree absolute whichever

was later’. It seems no one took the point about the order for sale not having

been enforceable either!! (ii) if the judge intends that a lump sum be paid from

the proceeds of sale, the order should ordinarily link payment to the completion

of sale. Interest could be awarded from the time the court considered a sale

ought to have been concluded, otherwise the paying party would have an

incentive to stall; (iii) there might be an element of double-counting with interim

maintenance and interest both payable until payment in full. The payee would

need funds prior to sale, hence the maintenance order. Some modest discount

of the lump sum might be called for. The judge can use his broad brush.

7.3.6 On the facts, (i) £5m was excessive for W’s housing needs – she had spent only

£4.3m; (ii) W’s income award was excessive. It was unfair to criticise H for


mismanagement and over-spending and then fix W’s award out of H’s

inheritance with reference to that excessive lifestyle during the marriage; (iii) just

because there was a mere possibility that some day W might remarry was no

reason not to seek to achieve a clean break; (iv) her income needs would be

reduced by c 10% and her Duxbury award would reflect that and the fact that in

due course she could trade down and release capital. With £4.3m for housing,

£2m for income needs, and with unpaid costs, the award would be rounded up

to £7m. Standing back that was a fair award having regard to all the factors.

7.3.7 Ward LJ’s summary of the applicable law was much less prescriptive than Jones

or N v F:

‘[43]. How then does the court approach the “big money” case where the wealth

is inherited? At the risk of over-simplification, I would proffer this guidance:

...

7. ... The fact that wealth is inherited and not earned justifies it being treated

differently from wealth accruing as the so-called “marital acquest” from the joint

efforts (often by one in the work place and the other at home). It is not only the

source of the wealth which is relevant but the nature of the inheritance. Thus the

ancestral castle may (note that I say “may” not “must”) deserve different

treatment from a farm inherited from the party's father who had acquired it in

his lifetime, just as a valuable heirloom intended to be retained in specie is of a

different character from an inherited portfolio of stocks and shares. The nature

and source of the asset may well be a good reason for departing from equality

within the sharing principle.

8. The duration of the marriage and the duration of the time the wealth had

been enjoyed by the parties will also be relevant. So too their standard of living

and the extent to which it has been afforded by and enhanced by drawing down

on the added wealth. The way the property was preserved, enhanced or

depleted are factors to take into account. Where property is acquired before the

marriage or when inherited property is acquired during the marriage, thus

coming from a source external to the marriage, then it may be said that the

spouse to whom it is given should in fairness be allowed to keep it. On the other

hand, the more and the longer that wealth has been enjoyed, the less fair it is that

it should be ringfenced and excluded from distribution in such a way as to render

it unavailable to meet the claimant’s financial needs generated by the

relationship.


9. It does not add much to exhort judges to be “cautious” and not to invade

the inherited property “unnecessarily” for the circumstances of the case may

often starkly call for such an approach. The fact is that no formula and no resort

to percentages will provide the right answer. Weighing the various factors and

striking the balance of fairness is, after all, an art not a science.’

7.4 In K v L (Ancillary Relief: Inherited Wealth) [2010] EWHC 1234 (Fam) [2010] 2 FLR

1467, Bodey J relied on two key features, the modest standard of living, and the

fact that the assets were solely derived from W’s discrete unmingled pre-marital

inheritance.

7.4.1 At age 15, W (born in England to Israeli parents) acquired a shareholding in an

Israeli company. Her shareholding was then worth £290,000. The parties began

to live together some 13 years later. They went through an Islamic marriage in

1987 and married at the English register office in 1991. Her shares were then

worth £680,000. Neither did any real work outside the home during the

marriage. They borrowed money from a friend to buy the matrimonial home in

1994. From 1993 the income from the shares averaged £38,000 pa. In 2001, W

sold some shares for £1m. She received bonus share issues, augmenting her

shareholding on three occasions between 2000 and 2004. From 2002 her income

from shares averaged £180,000 pa. W estimated the pre-separation expenditure

to be c £80,000 pa. The parties separated in April 2007. At that time, her

shareholding was worth £28.3m gross. By the time of trial, H was worth

£320,000, and W £58.8m, being mostly the £57.4m pre-CGT value of the

shareholding.

7.4.2 It was agreed that W would pay H a lump sum in a clean break settlement. It

was agreed that it would be paid offshore and not brought into the jurisdiction

by H until after decree absolute. This would avoid CGT here and in Israel on the

realisation of the shares necessary to pay the lump sum. H sought £18m. W

offered £5m. H claimed capital needs of £2.5m and an income need of £105,000

pa. Bodey J noted that this sum was two-thirds more than the figure the entire

family had lived on during the marriage. W’s unmatched and discrete

contribution in bringing her shareholding to the marriage, which had been the

sole source of family support during the marriage, was a highly relevant factor.

7.4.3 Having considered Miller and Charman, he asked the question, should there be

any sharing beyond that required to meet H’s needs fully and generously


assessed? Fairness did not require more than W’s offer of £5m, which very

generously met H’s needs and more. The analogy from Charman that special

contribution should not produce less than 33% for the other party was not apt to

these facts.

7.4.4 H’s appeal to the Court of Appeal was dismissed on 13 May 2011 (K v L (Non-

Matrimonial Property: Special Contribution) [2011] EWCA Civ 550):

C White v White said no to discrimination on gender grounds, but did not forbid all

discrimination. It was not discrimination to find that, whilst each party made

efforts of equal value during the marriage, the wife had made a financial

contribution to the marriage of great importance;

C the importance of the source of the assets may diminish over time, especially

where (i) initial contribution of non-matrimonial property was followed by the

acquisition of valuable matrimonial property over time; (ii) there was inter-

mingling; or (iii) an initial contribution of non-matrimonial property to the

matrimonial home might over time be treated by the parties as a central item of

matrimonial property;

C however, there was nothing on the facts of this case which required a diminution

in the importance of the source of the parties’ entire wealth, which had always

remained ring-fenced in the wife’s name;

C special contribution applied to the circumstances in which a spouse contributed

to matrimonial property. It was not possible to treat the initial contribution of

non-matrimonial property as a special contribution, and wrong to seek to apply

Charman to leave H with not less than 1/3 of the overall assets.

7.5 Whaley v Whaley [2011] EWCA Civ 617.

7.5.1 W ended up with £3.75m out of total assets assessed by Baron J at £10.4m, after

a 21 year marriage. There were four children aged between 12 and 20. £7m of the

total was made up of assets comprised in two trusts. H was a beneficiary of the

first discretionary trust, which had been set up by H’s father, but not of the

second which had been ‘spun’ off the first. Baron J treated H as having

‘resources’ within both trusts.

7.5.2 H attacked the award on the basis that it would put improper pressure on the

trustees and was excessive in the light of the source and nature of the trust assets.

7.5.3 The Court of Appeal held:


C the test from Charman as to whether asset was a resource was whether or not the

trustee would be likely to advance the capital immediately or in the foreseeable

future;

C the test was ‘likely’ not virtually certain to advance;

C there was no different rule for ‘dynastic’ trusts in contrast to ‘settlor-beneficiary’

trusts, and the court disavowed the use of any such classification;

C the question posed in Charman should be answered, albeit that the court will have

regard to the circumstances of the particular trust – how it came into being, who

the beneficiaries are, what duties the trustees have, what other relevant terms

there are, how it has been administered in practice and so on – in answering the

question and in determining, in due course, what ancillary relief order to make;

C the judge had been entitled to find the test met in relation to both trusts: in

relation to the first, it had been divided into three funds before H’s father died

and the trustees had done H’s bidding; in relation to the second, it was clear that

its creation owed much to tax issues and there was the expectation that H would

be added as a beneficiary once those issues had resolved;

C Baron J had put W’s needs at £3m but said that, in addition, W was entitled to

share in the acquest, even though it had been made with the assistance of and

through H’s interest in the trust. She put this element at £750,000 on the basis

that W deserved a modest share in the marital assets which exceeded her basic

needs. This approach did not fall foul of the Charman guidance on not adding up

the results of the needs, sharing and compensation principles: this was not a case

in which the award should be determined by needs alone but one to which the

sharing principle applied and that the proper application of that principle in this

case would produce a figure which exceeded the needs calculation by £750,000.

Baron J had then stood back and considered the overall percentage with which

W would be left. This approach, and the outcome, was well within the range of

decisions which were open to her on the facts.

7.6 Mansfield v Mansfield [2011] EWCA Civ 1056 concerned the impact of H’s

damages for personal injury. He received £500k in 1998. After a 5-6 year

marriage with two 4 year old twins, the DJ ordered W to receive about half the

capital, based on her housing need. H appealed against both quantum and the

fact that it was an outright transfer. The Court of Appeal dismissed the first

point but ordered that H should have a Mesher charge over W’s new property.


The DJ had failed properly to apply the guidance on damages contained in

Wagstaff v Wagstaff [1992] 1 FLR 333. Thorpe LJ held:

C Sharing principle must be tempered to reflect needs of recipient and very nature

of acquisition of capital, ie pi damages

C There should have been a Mesher: need to give special reflection to origin of

family capital and special purposes for which it was provided

C ‘exceptional factor in this case’: the origin of vast majority of the family capital

7.7 In SK v WL (Ancillary Relief: Post-Separation Accrual) [2011] 1 FLR 1471, Moylan J

rejected the need for a precise boundary between matrimonial and non-

matrimonial property. Here a company had been formed three years before

separation, at which time the children were aged 18 and 14, and had been sold

three years after separation for a considerable sum. Moylan J ordered W to

receive 40% of the overall assets, reflecting the fact that the business had taken

off impressively post-separation, whilst bearing in mind that H had been trading

with W’s unascertained share at the time of separation and had been fully at risk

between separation and trial.

7.8 In J v J (Financial Orders: Wife’s Long-Term Needs) [2011] EWHC 1010 (Fam) [2011]

2 FLR forthcoming, Moylan J again avoided detailed consideration of the sharing

principle, where most of the assets represented the sale proceeds of H’s pre-

acquired and inherited shareholding in a family company. Since W’s needs

entitled her to £4.04m out of c £8.7m, which would exceed any possible result of

the sharing principle, it was unnecessary to examine the latter in any detail. The

needs award included capitalised income provision which allowed for W to

release capital when the youngest child was 21. Whilst W’s current budget was

put at £105,000 pa for herself, Moylan J capitalised her maintenance based on her

‘long-term needs’ of £80,000 pa.

8 Lump sums under Schedule 1

8.1 Johnson J in Phillips v Peace [1996] 2 FLR 230 had held that, where the CSA had

jurisdiction to make a maintenance assessment, the court could not supplement

that assessment by making a lump sum order under Schedule 1 to the Children

Act 1989. In such cases, a lump sum order could not be used to provide for day


to day income needs or the regular support of the child. Thus, child maintenance

could not be capitalised and paid for say three years in advance.

8.2 Paragraph 5 of Schedule 1 provides that the power to order a lump sum may be

used ‘... to meet liabilities or expenses incurred in connection with the birth of the

child or in maintaining the child, reasonably incurred before the making of the

order’. It might therefore be thought that, if M cannot get her supplemental child

support capitalised in advance, on the basis of para 5 she could incur the debt

and have it paid off in arrears. Hale J in in J v C (Child: Financial Provision) [1999]

1 FLR 152 said no to this as well.

8.3 In ‘big money’ Schedule 1 claims, the courts have ordered fathers to pay lump

sums to mothers to clear the mother’s debts, as in Hill v Morgan [2007] 1 WLR 855,

on the basis that, in effect, he is so much richer than she is and will always be so.

8.4 This ‘big money’ approach appears to have infected Baron J’s approach in DE v

AB [2010] EWHC 3792 (Fam). The child was born in March 2008 after a brief

relationship. The DJ ordered F to pay a lump sum of £85,000 and provide a

housing fund for the child’s housing during his minority of £250,000. F paid only

£40,000 and appealed against the remainder of the lump sum and the housing

fund. His appeal was successful only in reducing the lump sum to £40,000 – the

housing fund remained.

8.4.1 Prior to meeting F, M had purchased a 3 bedroom property in London with a

£750,000 mortgage. Her basic salary had been £70,000 pa gross – her best year

with bonus was £140,000 gross. The property was worth £725,000 and the

mortgage was now £600,000, in arrears (rising by £2,500 pcm). She had

commercial debts totalling £112,000 as against net equity of £98,000. She had just

lost her job but her earning capacity was taken to be £60,000 pa, and her

mortgage capacity £150,000.

8.4.2 F had been made redundant from his city job in 2004 and received just under

£1m. Most of this was now gone – he had sunk c £500,000 in a South African

game reserve on land which was about to be compulsorily purchased. His

London house, bought in 2001, was now worth £1.2m as against a mortgage of

£800,000. His net equity was £358,000. His drawings from his business were

assessed by the CSA as £28,000 pa, but the DJ considered the CSA analysis was


flawed and that his earnings/ drawings were c £100k pa. His business had since

folded and Baron J considered his earning capacity was in the same region.

8.4.3 F’s appeal was on the basis that the total award (£85,000 plus £250,000 ie

£335,000) was plainly excessive where his own capital was only £358,000. He said

that the mother should rent, and that the lump sum was excessive and included

provision for revenue items.

8.4.4 Baron J’s conclusions:

• the court could assess the amount of a lump sum in a broad brush manner,

without specifying the precise amounts of each category of the claim, and

without having to audit the claim;

• the argument about double counting on revenue costs might be a good one if the

father had truly been making a significant contribution via the Child Support

Agency, particularly given the district judge's findings as to the true level of his

earning capacity. But he was not. He has only ever paid minimal sums, and

currently he is paying some £22 per week;

• the father also contended “that the district judge was only entitled to make lump

sum provision in respect of specific purchases for the direct benefit of the child

which were assessed, as he put it, at £46,575. I do not accept this submission

because the statute is widely framed. Mortgage payments and general running

costs are recoverable because they are (of necessity and in part) for the direct

benefit of any child. Obviously, such payments cannot be double counted, but

inadequate provision towards running costs, based on a flawed CSA calculation,

would, in my view, entitle the court to supplement such expenditure in the right

case by way of capital provision, particularly if merited on the facts.”

8.4.5 This case therefore suggests that:

• it might be appropriate to order a housing fund even where this might deprive

the Respondent of most of his capital, especially where (i) he had a good

mortgage capacity, and/or (ii) he had been cavalier (or more than a little

unlucky) in depriving himself of other capital;

• although Phillips v Peace is not mentioned specifically, a different approach can

be taken to allow for an applicant’s debts to be paid;


• in appropriate cases, a lump sum could be ordered to pay for revenue expenses

such as mortgage interest – assuming that the court considers the CSA has made

an incorrect assessment.

8.4.6 Surely if a parent contends that the CSA assessment is incorrect, the appropriate

course is an appeal or variation within the CSA system, and not incurring debt

and having it paid off by a lump sum as a sort of unofficial appeal against the

CSA assessment?

8.5 Schedule 1 settlements

8.5.1 If you are after a housing fund, consider the dangers of asking it to be paid to

trustees. The Re N saga (see Re N (Payments for Benefit of Child) [2009] EWHC 11

(Fam) [2009] 1 FLR 1442 through to G v A (No 3) [2011] EWHC 2377 (Fam))

shows:

C you cannot obtain a charging order to enforce an order which requires the

Respondent to settle a sum on the Applicant/ trustees for the benefit of the child;

C until the trust deed is finalised and trustees appointed, no one can give the

Respondent a receipt for his monies and so the obligation to pay the sum cannot

arise until that point;

C HHJ Horowitz in this case recommended the much simpler option of having the

terms of the trust in the order (as in the Resolution Precedents) rather than

requiring a separate trust deed;

C The court has the power in a Schedule 1 case to order a transfer of a jointly

owned property into one party’s sole name with a charge back to the

Respondent: see Re S [2002] EWCA Civ 168.

8.6 Schedule 1 lump sums for legal fees.

8.6.1 Charles J in CF v KM (Financial Provision for Child: Costs of Legal Proceedings) [2010]

EWHC 1754 (Fam) [2011] 1 FLR 208 held there was jurisdiction to make an

‘interim’ lump sum under Schedule 1 towards legal fees. F was ordered to pay

£20,000 to M’s solicitors, on their undertaking to use it only in discharge of legal

costs, referable to a forthcoming three day trial in the s 8 proceedings and

Schedule 1 costs up to and including a listed FDR. F’s income was not such as


would allow the court to make a maintenance order, but the lump sum provision

was ‘for the benefit of the child’ in ensuring M was properly represented in both

sets of proceedings. Charles J rejected ‘floodgates’ concerns:

“(i) ... an application would only have a sensible chance of success if the non

resident parent has capital assets or financial resources from which a lump

sum could be paid or which would warrant a settlement or property

transfer order being made,

(ii) in most cases where s 8(6) does not apply this would not be the case, and

so there would be no realistic claim under Schedule 1 for any purpose,

and,

(iii) authorities on the exercise of the discretion would establish that provision

in respect of costs would only be made in limited circumstances, and in

particular after the court had had regard to (a) whether such an order

would be unfair to the paying parent, (b) whether there was real prospect

of a substantial award being made under one or more of paragraphs

1(2)(c) to (e) against the paying parent because of his financial resources

and (c) the prospects of such costs (or some of them) being recouped by

deduction from the award that the paying parent was ordered to pay,

settle or transfer.”

8.6.2 There is nothing to limit this provision to cases where the parents are unmarried.

In an appropriate case a lump sum could be sought under Schedule 1 during

pending divorce proceedings.

8.6.3 Note that, in this context, clause 45 of the Legal Aid, Sentencing and Punishment

of Offenders Bill would:

C allow the court to make an order in divorce nullity & judicial separation

proceedings for a lump sum to be paid to fund ‘legal services’ (new s 22ZA of the

MCA 1973);

C prevent a ‘costs allowance’ being included in maintenance pending suit orders

under s 22 (but not in interim orders for periodical payments made on or after

decree under s 23);

C not prevent interim lump sum orders in Schedule 1 proceedings funding legal

services.


9 Departure from equality based on future income disparity

9.1 Murphy v Murphy [2009] EWCA Civ 1258 [2011] 1 FLR 537 ought to have been a

simple case. Stripped from the errors made at first instance, however, it

nevertheless contains a surprising conclusion.

9.1.1 It was a childless marriage that lasted 7½ years. Both parties were aged about 40.

H had been a high-earning banker but had been made redundant at about the

time of separation and had not worked since. Parker J sought to achieve a 65:35

split of the overall assets, with a nominal maintenance order. The split of the

former matrimonial home worked out at £2.5m to W and £12,000 to H. This

outcome was based on:

C the fact that H had a deferred compensation scheme, which despite H’s

unchallenged evidence that it was ‘illiquid’ and therefore ‘below the line’, she

treated as a readily realisable asset;

C she accepted W’s submission that H had wasted £2m since separation, even

though W was not seeking an add-back, and the figures were wrong and such

capital that had been spent was readily explicable;

C she sought to justify her award on the basis that W’s needs were ‘pre-eminent’

even ‘magnetic’.

9.1.2 The Court of Appeal held that she was clearly wrong about the deferred

compensation scheme and the ‘wasting’ of assets. As to needs, Thorpe LJ said

this:

“This was an 8-year childless marriage. The parties are both aged approximately

40. Each of them has a fresh start in life to make, certainly on an emotional plane.

The wife has retrained and is already developing a new career. There are £3m of

assets to meet their respective needs. This was essentially a simple case that was

made unnecessarily contentious and complex. The case had all the hallmarks of

clean break and equality.”

9.1.3 So, no departure from equality then?

9.1.4 Er, yes. The Court of Appeal rightly removed the nominal maintenance order.

But they rejected H’s case for equal division of the realisable assets. Why?


“[37] I would not put it in terms of need or waste obviously; but I would put it

as the price the husband must pay for the clean break, recognising the disparity

in their future earning capacity and in their future capacity to generate capital.

That disparity is much emphasised by the judge on her assessment of the

husband’s evidence, in which he sought to explain his early retirement in 2004

and to assert that he had no great prospects for the future. The judge roundly

rejected that as contrived for the purposes of achieving the best possible result

in the litigation. She held him to be an exceptionally able man with very bright

prospects for the future; and from that assessment we cannot depart. The wife

sacrificed a career in a human resources field, and, while she had retrained, it is

only in a field where ceilings are much lower.

“[38] Accordingly, it does seem to me that the departure from equality is

principled, given that this is to be a clean break and given that the clean break

should reflect what each has sacrificed in the past, what each can aspire to in the

future, and to their respective needs, within which is the judge’s assessment that

the wife’s housing need in central London amounts to something like £1.2m.

Whilst, of course, she has the freedom to arrange her finances as she pleases, once

the varied order has been implemented some weight must be attached to that

finding.”

9.1.5 The order was varied so that, from the sale proceeds of the fmh, W was to receive

£1.52m and H £819,000.

9.1.6 It might be queried how this rationale is consistent with Baroness Hale’s assertion

in Miller that: “In general, it can be assumed that the marital partnership does not

stay alive for the purpose of sharing future resources unless this is justified by

need or compensation. The ultimate objective is to give each party an equal start

on the road to independent living.”

10 Lump sums payable by instalments

10.1 Consider the following order:

(1) W do pay H a lump sum of £100,000 on 1 April 2011.



(4) On payment of the sum due under (1) above, H do transfer his interest in

27 Acacia Avenue to W.


10.2 W pays the £100k lump sum on 1 April 2011. H transfers the property to W. W

then says she has run out of money and cannot pay the sums due in April 2012

and 2013.

10.3 Can W apply to vary the order to eliminate her obligation to pay the sums due

in 2012 and 2013?

10.3.1 A lump sum order is only variable under s 31 if it is a lump sum order payable

by instalments under s 23(3)(c). Where an order is made under this provision, the

court has the power to order security for future instalments. On a variation

application, the court has the power not just to recalibrate or reschedule the

payments, but also to extinguish some or all of the future instalments. As such,

it is a ‘one-way’ bet: the payee cannot apply to vary up the amount of future

instalments if the payer’s circumstances improve.

10.3.2 On one view, the above order is not variable, as it is an order for the payment of

lump ‘sums’ within s 23(1)(c). The court has the power to make an order for the

payment of a ‘lump sum or sums’ on only one occasion: it can of course provide

for more than one lump sum order on the same occasion. By choosing the above

drafting, the parties chose to have an order which was not variable, and where

the court would not have the power to order security for the payment of future

sums.

10.3.3 The opposite view was taken in H v H, a so far unreported decision of Parker J.

She held that any order for the payment of money over time was a lump sum

payable by instalments. This is the case even where the parties appeared to have

drafted the order as an order for ‘lump sums’. In substance, such an order is one

for a lump sum payable by instalments. The parties cannot contract out of s 31

by fancy drafting.

10.4 It is likely that there will be an appeal in this case.

© Michael Horton10 October 2011Coram [email protected]/barristers/profiles/michael_horton


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