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Finance Cases Review: March 2015

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James Pullen of 29 Bedford Row reviews two of the key cases published in the last month, including the Supreme Court decision in Wyatt v Vince. This is the first in a series of regular monthly reviews from the contributors at 29 Bedford Row.

  • image of James Pullen familyt law barrister 29 Bedford Row

    James Pullen, 29 Bedford Row

    Wyatt v Vince [2015] UKSC 14

    The Supreme Court has released its long-awaited judgment in what Lord Wilson, giving the only judgment, rightly described as "highly unusual" circumstances. The wife was bringing a financial claim against the husband 22 years after the parties divorced and 27 years after they separated. The husband claimed that the wife had brought a claim at the time, which had been dismissed on account of their total lack of resources. However, the file had been mislaid and the husband was therefore not able to prove that he had achieved a clean break. Since then, the husband had successfully grown his green electricity company and was by any measure extremely rich. The wife on the other hand remained very poor, though she is living in her own property. The parties have one child together, and had also treated another child of the wife's from a previous relationship as a child of the family.

    The wife brought a claim against the husband in 2011, which included a legal costs allowance, and the question for the court was whether the husband could strike out the wife's claim under FPR r 4.4(1). The view of Deputy High Court Judge Mr Nicholas Francis QC at first instance was that he could not and dismissed the claim, also awarding her 4 months' costs allowance to be paid directly to her solicitor. The husband appealed to the Court of Appeal who reversed the decision and struck out the wife's application. They also ordered repayment of the sum of money that exceeded the state of the wife's account with her solicitors.

    Lord Wilson said that the appeal to the Supreme Court raised four questions:

    (a) What is the extent of the jurisdiction to strike out a spouse's application for a financial order under Rule 4.4 of the family rules?

    (b) In the light of the factors relevant to the determination of the wife's application, did the Court of Appeal err in striking it out?

    (c) If the answer to (b) is yes, what case management directions would be proportionate to the unusual circumstances of the wife's application?

    (d) Irrespective of the answer to (b), did it err in setting aside the costs allowance order and/or in making the repayment order? [3]

    As it was not possible to determine what had happened in terms of finances upon the parties' divorce, Lord Wilson said that there were three possibilities that consisted with the husband's recollection that the court ordered at the time that he did not have to pay any money. Either there was a nominal order, or it made "no order" or never addressed them, or it dismissed the wife's application. Lord Wilson agreed with the Court of Appeal that the second was the most likely and the third highly unlikely given that the wife was at that stage a young mother. Therefore on the face of it the wife's claim was still open.

    The question then was whether the court could or should strike out the wife's application for a financial order, found in Rule 4.4. Lord Wilson makes clear that the court has no inherent jurisdiction to do this: "In my view family courts may, like civil courts, now safely proceed on the footing that, were their power under the rules not to go so far as to enable them to strike out the statement, their inherent jurisdiction, if any, would go no further: Summers v Fairclough Homes Ltd [2012] UKSC 26, [2012] 1 WLR 2004, para 42." [19]

    Rule 4.4(1) FPR provides:

    the court may strike out a statement of case if it appears to the court –

    a) that the statement of case discloses no reasonable grounds for bringing or defending the application;

    b) that the statement of case is an abuse of the court's process or is otherwise likely to obstruct the just disposal of the proceedings …"

    Lord Wilson acknowledges that this is modelled upon a similar provision in CPR Rule 3.4(2) which refers to a "claim" rather than "application". He identifies a problem with the wording "statement of case":

    "The conundrum stems from the fact that Form A in effect requires the applicant to do no more than to identify the names and addresses for service of herself and the respondent and to specify the financial order or orders for which she is applying. The form does not enable the applicant there to set out the grounds of her application. Instead she will no doubt do so in her financial statement, which, save as otherwise directed, must be in Form E and must be filed and served at least five weeks prior to the first appointment: Rules 9.14 and 5.1 and Table 2 in Practice Direction 5A. It would therefore make no sense to ask, as a literal construction of the rules would require, whether the Form A discloses reasonable grounds for bringing the application: for it never discloses any grounds at all. We must do our best to make the rules operate sensibly and I suggest that, pending possible reconsideration by the Family Procedure Rule Committee either of Rule 4.1(1) or of Rule 4.4(1)(a) and (b), the phrase "statement of case" in (a) and (b) should be taken to refer to the statement in support of the application for a financial order as well as to the application in Form A itself." [22]

    There is the further issue that the CPR has the additional wider power of summary judgment under Rule 24.2, which has no equivalent in the FPR. Lord Wilson zeros in on this as the difficulty in the Court of Appeal's judgment:

    "Now arises the complication. On the one hand the family rules contain no power analogous to Rule 24.2 of the civil rules to give summary judgment. On the other hand paragraph 2.4 of Practice Direction 4A, which supplements Rule 4.4 of the family rules, provides:

    'A party may believe that it can be shown without the need for a hearing that an opponent's case has no real prospect of success on the facts, or that the case is bound to succeed or fail, as the case may be, because of a point of law (including the construction of a document). In such a case the party concerned may make an application under rule 4.4.'

    The paragraph is of course modelled on paragraph 1.7 of Practice Direction 3A in the civil rules, set out at para 24 above." [25]

    "In giving the leading judgment in the Court of Appeal, with which Jackson and Tomlinson LJJ agreed, Thorpe LJ based the decision to strike out the wife's application on Rule 4.4(1)(a), namely on the absence of any reasonable grounds for bringing it. But, in giving a concurring judgment with which in turn Thorpe and Tomlinson LJJ also agreed, Jackson LJ identified an alternative basis for the decision. He suggested that it was unfortunate that the family rules contained no rule equivalent to Rule 24.2 of the civil rules; that the effect of the omission could not be that an application for a financial order which had no real prospect of success had to proceed to trial; that the solution lay in Rule 4.4(1)(b), namely that an application which had no real prospect of success was an abuse of the court's process; and that the wife's application was a classic example of it." [26]

    "As a result of the fuller argument with which this court has been presented, it is clear to me that, with respect, Jackson LJ was wrong to insinuate into the concept of abuse of process in Rule 4.4(1)(b) of the family rules an application for a financial order which has no real prospect of success. The learned Lord Justice did not (and could not) suggest that the omission from the family rules of any rule analogous to Rule 24.2 of the civil rules was accidental. It was deliberate; and so it was bold for him to say that nevertheless the effect of that rule was to be discerned elsewhere in the family rules. Although the power to strike out under Rule 4.4(1) extends beyond applications for financial remedies, for example to petitions for divorce, no doubt it is to such applications that the rule is most relevant. The objection to a grant of summary judgment upon an application by an ex-spouse for a financial order in favour of herself is not just that its determination is discretionary but that, by virtue of section 25(1) of the 1973 Act, it is the duty of the court in determining it to have regard to all the circumstances and, in particular, to the eight matters set out in subsection (2)…. I suggest that Rule 4.4(1) of the family rules has to be construed without reference to real prospects of success. The three sets of facts set out in paragraph 2.1 of Practice Direction 4A exemplify the limited reach of rule 4.4(1)(a), valuable though no doubt it sometimes is. The touchstone is, in the words of paragraph 2.1(c) of the Practice Direction, whether the application is legally recognisable. Applications made after the applicant had remarried or after an identical application had been dismissed or otherwise finally determined would be examples of applications not legally recognisable. Since the greater includes the lesser, it is no doubt possible to describe applications which fall foul of Rule 4.4(1) as having no real prospect of success. Nevertheless paragraph 2.4 of the Practice Direction remains in my view an unhelpful curiosity which cannot override the inevitable omission from the family rules of a power to give summary judgment." [27]

    Having determined that the wife's appeal should therefore succeed, the judge gave her cause for less optimism by identifying, under the court's general case management powers, some of the issues she will face in obtaining a substantial award:

    (a) The marital cohabitation subsisted for scarcely more than two years.

    (b) It broke down 31 years ago.

    (c) The standard of living enjoyed by the parties prior to the breakdown could not have been lower.

    (d) The husband did not begin to create his current wealth until 13 years after the breakdown.

    (e) The wife has made no contribution, direct or indirect, to its creation.

    The "inordinate" delay will clearly be the most pertinent factor in the trial judge's mind. Lord Wilson addressed this as follows:

    "Consistently with the potentially life-long obligations which attend a marriage, there is no time-limit for seeking orders for financial provision or property adjustment for the benefit of a spouse following divorce. Sections 23(1) and 24(1) of the 1973 Act provide that such orders may be made on granting a decree of divorce "or at any time thereafter". Yet there is a prominent strain of public policy hostile to forensic delay. The court will look critically at explanations for it; and, even irrespective of its effect upon the respondent, will be likely, by reason of it and subject to the potency of other factors, to reduce or even to eliminate its provision for the applicant." [32]

    He dismissed the husband's contention that the delay has deprived him of the chance to establish that the wife's claim was dismissed on the basis that this was a highly unlikely decision to have been made at the time.

    The wife asserts needs of £1.9m. Lord Wilson makes a point well worth remembering particularly in light of the recent Wright case that: "In order to sustain a case of need, at any rate if made after many years of separation, a wife must show not only that the need exists but that it has been generated by her relationship with her husband: see Miller v Miller, McFarlane v McFarlane [2006] UKHL 24, [2006] 2 AC 618, para 138 (Lady Hale)." [33]

    While the judge is not clear whether the wife "will be able to sustain her claim on the basis of need", he highlights a point made by the judge at first instance but omitted by the Court of Appeal – namely that the wife's contributions in caring for the two children both during the marriage and after separation are factors that must be taken into account under s25(f) MCA 1973.

    Lord Wilson rightly acknowledges that these are the "two magnetic factors" in the case, pulling in opposite directions. His preliminary view is that a suitable order may be one that enables the wife to purchase a "somewhat more comfortable, and mortgage-free, home for herself and her remaining dependants." 

    In terms of costs, Lord Wilson restored the costs allowance order made at first instance. The wife attempted to marshal an argument that she should not have to repay any of the sum ordered by the Court of Appeal on the grounds that it had become the property of her solicitors. Lord Wilson rejected this analysis and held that the solicitors held the money for her benefit subject to the terms of the order. Importantly, the judge said that "an appellate court has a discretion whether to exercise its jurisdiction to order repayment in the wake of a successful appeal."

    Much has been made in the press that this will open the floodgates for spouses who failed to issue any financial claim at the time of their divorce and now believe doing so would bear fruit. However it should not be forgotten that Ms Wyatt has only just earned her place at the starting line. It remains to be seen quite what award a High Court judge deems it appropriate to make in light of the substantial delay, particularly given Lord Wilson's doubts over a needs case having any legs at all. The initial barrier to the wife's claim may have been removed, but she is by no means home and dry yet. 

    JL v SL (No.3) [2015] EWHC 555 (Fam)

    JL v SL has come before Mr Justice Mostyn three times. The first occasion – JL v SL (No 1) [2014] EWHC 3658 (Fam) – was in October 2014 on appeal from an order made by District Judge Reid in financial remedy proceedings. There were three grounds of appeal, namely that the District Judge had erred:

    i) in her distribution of capital by not properly reflecting the non-matrimonial origin of part of the divisible pool;

    ii) in providing for a step down as and when the two children of the family complete university education; and

    iii) in not providing for the spousal maintenance to be index linked.

    In an extempore judgment Mostyn J first stated that the third ground was unarguable on the basis that neither party had argued for this at the final hearing and it was "squarely within her (sic) remit of her [the DJ's] discretion."

    The first ground was in relation to a significant inheritance of £465,000 that the wife had received and put into a bank account in her husband's name. Reid DJ held that this was a "gift to the family" and therefore a matrimonial asset. Mostyn J, after scrutinising the transcript in detail, rode roughshod over this assessment of the evidence, stating that it could not "tenably lead to such a finding". He accepted the wife's reasons for doing this that they wanted to both obtain the best rate of interest and ensure that the husband would have liquid funds available should she die prematurely.

    The judge then ran briefly through the law on pre-acquired assets, notably saying that everything he said in N v F [2011] 2 FLR 533 in relation to pre-matrimonial property "applies with equal force to property inherited during the course of a marriage." He went on to say that the placing of monies in the husband's name "does not mean that the non-matrimonial source of the monies in question is destroyed as a relevant consideration; far from it." He therefore allowed the first ground.

    This then had the knock-on effect of making ground two erroneous: "an unequal division of that pool of assets would mean that the wife would ex hypothesi have more money to invest, and so her need for spousal maintenance would be pro tanto reduced." However he did say that it was probably more erroneous in favour of the husband than the wife.

    Mostyn J said that in circumstances where an error in the exercise of discretion has been identified, the appellate court can exercise the discretion anew or alternatively order a retrial. He said that "generally speaking" the preferred course is the former in order to bring closure. However, two new events had occurred since trial. Firstly the husband had sold his company for £1.1 million (£580,000 net) having given evidence at trial that the shares in it were valueless. Secondly the husband had recently been made redundant, receiving a payment of £100,000. Mostyn J said that in light of these events and the fact that they were "more readily admissible than evidence that relates to events that occurred prior to judgment" under the rule in Ladd v Marshall, a retrial before himself would be appropriate.

    This set the stage for the judge to expand on what he thought was the correct approach to both inherited assets in JL v SL (No 2) [2014] EWHC 360 (Fam). The judgment also deals with the husband's post-separation accrual.

    There are two divergent schools of thought among the High Court judiciary in respect of the treatment of matrimonial and non-matrimonial assets. Both would agree with Mostyn J's assertion in this case that "a key component of fairness is drawing the distinction between matrimonial and non-matrimonial property." However how to draw that distinction is a matter of debate. In one corner, spearheaded by Moylan J, the method is to adjust the overall figure down (or up) from 50% based on the extent to which certain assets can be classed as non-matrimonial. Mostyn J describes this here as "quintessentially intuitive" and "risks being described as a lawless science" – N v F [2011] 2 FLR 533.

    Mostyn J's preferred method, and it is he who spearheads this approach, is to firstly separate the matrimonial from the non-matrimonial, and then to divide the non-matrimonial only so far as needs require while dividing the matrimonial property equally, unless there is good reason not to.

    He draws support for his more scientific method from paragraph 21 of Wilson LJ's judgment in K v L [2011] EWCA Civ 550: 

    "Thus a special contribution arises in circumstances in which a spouse's contribution, direct or indirect, to the creation of matrimonial property has been so extraordinary as to dictate a departure within the sharing principle from the ordinary consequence of its equal division. It is therefore no accident that this court's reference, [in Charman] at [90], to the unlikelihood of departure from equality further than to 66.6% - 33.3% was of "division of matrimonial property". By contrast, although non-matrimonial property also falls within the sharing principle, equal division is not the ordinary consequence of its application. The consequences of the application to non-matrimonial property of the two other principles of need and of compensation are likely to be very different; but the ordinary consequence of the application to it of the sharing principle is extensive departure from equal division, often (so it would appear) to 100% - 0%."

    Mostyn J concludes from this: 

    "This seems to me to mandate that the court should always attempt to determine the partition between matrimonial and non-matrimonial property. Once it has done so the matrimonial property should usually be divided equally and there should usually be no sharing of the non-matrimonial property." [25]

    Mostyn J also updates his stance in relation to non-matrimonial property as follows:  

    "Given that a claim to share non-matrimonial property (as opposed to having a sum awarded from it to meet needs) would have no moral or principled foundation it is hard to envisage a case where such an award would be made. If you like, such a case would be as rare as a white leopard." [22]

    In relation to the matrimonial property, Mostyn J asserts that: 

    "It should be divided equally. This principle is reflected in statutory systems in other jurisdictions. It resonates with moral and philosophical values. It promotes equality and banishes discrimination." [19]

    Good reasons not to divide the matrimonial property equally would be either the special contribution of one party or the extent to which non-matrimonial property had been mingled or become "part of the economic life of [the] marriage…utilised, converted, sustained and enjoyed during the contribution period". In the judgment he repeats his view expressed in S v AG [2011] 3 FCR 523 that even when mingled "the original non-matrimonial source of the money often demands reflection in the award." This was, according to Mostyn J, precisely Reid DJ's mistake at first instance in this matter. Indeed, he went entirely the other way by finding that the inherited £465,000 was entirely non-matrimonial and therefore should not be shared with the husband whatsoever.

    While Mostyn J's approach, which he emphasises "maintains the purity of equal division of what is found to be the matrimonial property", could rightfully be described as the more scientific of the two, whether it is any less intuitive at heart is another matter. The judge himself appears to acknowledge this in his remark: 

    "Of course an unequal division of the matrimonial property risks the very same criticism of being a lawless science to which I have referred above but in some circumstances it is unavoidable." [31]

    The judgment then deals with the husband's post-separation accrual and the perennial tension in these sorts of cases between, on the one hand, the lack of contribution by one party to the growth itself (or the marriage) since separation, and on the other hand, the fact that the party who has generated the growth has done it using the other party's share of matrimonial property thus attaching to the growth a certain degree of matrimonial character. Mostyn J repeats the principles he set out in Rossi v Rossi [2006] EWHC 1482 (Fam) in relation to how the court should treat this issue. In essence he says that the same technique of separating matrimonial and non-matrimonial property should be applied. Non-matrimonial property is that which was "acquired or created by a party by virtue of his personal industry and not by use (other than incidental use) of an asset which has been created during the marriage and in respect of which the other party can validly assert an unascertained share." [24.3]

    The non-matrimonial property is "not quarantined and excluded from the court's dispositive powers." Rather the court will share it insofar as it thinks it is fair to do so. Mostyn J rows back from this position in this judgment:

     "Perhaps unsurprisingly, I remain satisfied that my summary of the relevant principles is correct, although my references to sharing non-matrimonial property in paras 24.6 and 24.7 must now be read in the light of K v L and S v AG. Only very exceptionally will such sharing be found to be fair." [36]

    Mostyn J cites with approval Roberts J's encapsulation of the key question in this debate in Cooper-Hohn v Hohn [2014] EWHC 4122 (Fam): "Continuum versus new ventures." He says on first reading Roberts J's judgment he "wondered if I had sighted a white leopard" in the sense that the wife in that case would receive some of the non-matrimonial property on a sharing basis. However, he does not pursue this, instead saying that Roberts J's decision was that the funds at the time of separation "remain matrimonial property but the increase in value achieved in the period of separation may be unequally divided." Interestingly his own analysis in Rossi would appear to lead to many a sighting of his fabled white leopard.

    Mostyn J maintains that despite this, 

    "there will be cases where the post-separation accrual relates to a truly new venture which has no connection to the marital partnership or to the assets of the partnership. In such a case the post-separation accrual should be designated as non-matrimonial property and save in a very rare case should not be shared."

    However his support for Roberts J ends there as he notes the approach she takes allies her with Moylan J in the intuitive corner by settling on percentage figure reflecting the husband's unmatched contribution post-separation as well as his special contribution generally. 

    Mostyn J acknowledges Wilson LJ's view in Jones v Jones [2011] EWCA Civ 41 that the scientific approach should be checked at the end of a judgment by comparison to the overall percentage technique. However, he thinks that ordinarily it would not alter a result achieved through more rigorous analysis. The battle rages on.

    In relation to the facts of this case and the non-disclosure by the husband of the value of his shares, Mostyn J punishes him in relation to costs, ordering him to pay the full £85,000 of the wife's costs at first instance. He also says that he would have allowed an appeal on this ground as it clearly would have made a material difference to the overall award, which is the law as it currently stands although this will shortly be challenged in the Supreme Court in the case of Sharland v Sharland [2014] EWCA Civ 95. 

    It should be noted that after all the legal argument the final overall award to the wife was coincidentally 50.7%. Such an outcome means that Mostyn J was not even afforded the chance to cross-check his technique with a more intuitive approach, though in all likelihood he probably wouldn't have done it anyway.

    Interestingly this award made the wife worse off than that which she successfully appealed. This was on the basis that the District Judge had provided for a maintenance award while Mostyn J had decided a clean break could be achieved. Counsel for the wife sought, as Mostyn J put it, "post judgment relief", raising a number of issues including the way in which the Duxbury sum was calculated. This led to a third judgment: JL v SL [2015] EWHC 555 (Fam).

    Mostyn J rejects all of the wife's counsel's points, pointing out that "a clean break is to be achieved wherever possible." He also elaborates on his calculations to show why his award is fair and will meet the wife's needs going forward. 

    The judge rebuffs counsel for the wife's attempt to replace the Duxbury formula with her own projections: 

    "No evidence was adduced as to why the views of the Duxbury Committee should not be followed, and for that reason I preferred, inevitably, to use the customary formula, with its stated economic assumption of an actual gross performance rate of 6.75%." [17]

    There is a further assertion that "W will now have to use her own resources to capitalise H's obligation to pay periodical payments during phase 1 & 2. W will fund her own clean break." Mostyn J's rejects this entirely: 

    "I confess to failing to understand this point entirely. Of course every claimant must use her own resources to meet her needs, and can only claim periodical payments if they are insufficient. The submission comes close to suggesting that this wife has an independent sharing or compensation claim to the husband's income irrespective of her own resources. As I have sought to explain this could only happen in a most exceptional case, which this case clearly is not (see B v S [2012] EWHC 265 (Fam) at paras 75 – 79, and SS v NS (Spousal Maintenance) [2014] EWHC 4183 (Fam) at para 46(ii))." [20]


Published: 13/03/2015

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