Pre nups – the logic develops V v. V 2011

Needs don't just trump contributions, they also trump pre nuptial agreements. Well, sort of. Following on from Radmacher v.Granatino, V v. V has just been reported as an appeal before Charles J in the High Court. You can find it here: http://www.bailii.org/ew/cases/EWHC/Fam/2011/3230.html.

The facts, briefly, are that H and W cohabited from 2002, became engaged and had a child in 2003, signed a pre nup in July 2005 and married in August 2005. They separated in 2008, by which time there were two children, aged 5 and 2. H is now 41 years old, 10 years older than W. So this was a short marriage/relationship of just six years or so.

By the time the District Judge came to decide the case, the capital to be divided totalled just over £1¼m. H also had a pension fund of some £94k. It seems that H had been a very high earner but had had to change jobs in 2009 and his new employment had appreciably lower income of around £55k p.a. net. A large part of the capital had been accumulated by H prior to the marriage from his own efforts and from inheritance. The pre nup identified this capital as amounting to just over £1m at the time. W is Swedish and at H's request, she agreed to enter into a pre nup and a Swedish lawyer known to her family prepared it.

The order at first instance was pretty demanding on H. W was to get capital of £800,000, so just over 62% of the total immediately available, apparently. In addition she was to receive global maintenance of £30k, with incomes being equalised as a result. This was on a joint lives basis.

At first instance, the judge placed, as she put it, limited weight on the marriage settlement document, as the pre nup was designated. This was a gloriously brief document and is set out in full in the judgment:

"We, [the wife and the husband], agreed to marry, and we hereby agree upon the following Marriage Settlement.

All property that is now owned by [the husband], including any future return yield hereof property (sic), shall be his private property, and [the wife] has consequently no right to marital property in this property.

All property that any one of us may inherit or receive from a will, or as a gift, as well as the yield hereof (sic) shall be the inheritor's / the receiver's private property.

All other property that any one of us acquires during the marriage shall be marital property.

Swedish law shall be applicable to this Marriage Settlement.

A list of the property that [the husband] now owns is enclosed to this Marriage Settlement"

 

As an aside, I have to say that if Swedish law is such that a pre nup can be as short and to the point as this, it may have a lot going for it! It seems that Swedish law has a community of property approach, so identifying what is not marital property is the key to apportionment after separation. The DJ took the view for various reasons (which followed what one might call the conventional approach to pre nups), that she could not place any significant weight on the agreement. Interestingly, one of those reasons was that it failed to specify what would happen if the parties separated.

On appeal, H focused on the argument that there should have been a charge back on the house W was going to buy with her share of the assets. This would reflect the agreement they had previously entered into to the extent that was reasonable. It was never argued that the agreement was entirely binding and should be followed to the letter. Had it been, this would have left W with probably £250k at most, which was plainly inadequate to house her in London where she and the children live.

Charles J decided that Granatino has changed fundamentally the correct approach to pre nups – "At the heart of that significant change, is the need to recognise the weight that should now be given to autonomy, and thus to the choices made by the parties to a marriage (see paragraph 78). The new respect to be given to individual autonomy means that the fact of an agreement can alter what is a fair result and so found a different award to the one that would otherwise have been made".

And also, "Having said that, it is also very important to recognise and remember that it is the court and not any prior agreement between, or choices made by, the parties that will determine the award to be made under the MCA 1973 (see for example paragraph 7 of the majority judgment in Granatino). It follows that:

i) a nuptial agreement is only a factor in the exercise of the judicial discretion conferred by the MCA, and

ii) the guidance given in Granatino, on the approach to be adopted by the court, and on the weight to be given to an agreement (and thus to autonomy in a given case) and to factors which detract from and enhance that weight, have to be read and applied in that context,"

Charles J then sets out an approach the court should adopt when confronted by a pre nup:

"the court should consider:

i) the meaning of, and the existence of any vitiating factors in respect of, the marriage settlement, and then

ii) its impact on the result suggested by sharing principle, and then

iii) its impact on the overall award."

It's clear that by vitiating factors, the usual suspects are contemplated – was there non disclosure of assets, was there duress, was there adequate legal advice? These are more fully set out in the judgment (paras. 55-65) and are well worth reading and keeping to hand. In this case, Charles J was satisfied on the evidence the DJ heard that none were engaged. The judge concluded that the DJ had adopted an approach appropriate prior to Granatino but which was now inappropriate. He also found that there were other factors which pointed to a departure from equality in H's favour:

i) the husband had pre-acquired assets, and so an "unmatched contribution" of around £1m,

ii) part, albeit a small part, of those assets were acquired by way of inheritance, and

iii) the length of the marriage assessed by reference to the date the parties started living together (5 and a half years) was a reasonably short one.

As a result, the order was overturned. There was some updating information and recalculating of the arithmetic. Charles J then awarded H a Mesher type charge back for one third of the value of the house W intended to buy, making H better off to the tune of £250k. He cross checked this against what he considered W would need to live in once the children were off her hands, which confirmed that the reduced amount would be sufficient. Furthermore, because H had been successful in his appeal, he also received a costs order in his favour, which was provided for by an increase in the amount of the charge back.

In conclusion, the pre nup provided for over £1m of H's assets to be ring fenced but the final order gave him only a relatively modest credit for this. However, it is explicitly relied on as a reason for skewing the order back in his favour. When all is said and done though, one does have to question the DJ's failure to take into account the short marriage, the very substantial pre-acquired assets and the inheritance. Can it really be said that the key factor was the pre nup? Weren't these other factors sufficient justification for Charles J's order on their own?

When thinking this over, I remain unconvinced that the pre nup has actually made any material difference to the outcome at all.  How can a document which purportedly excluded over £1m of assets but didn't, be said to have had a critical effect over and above the other listed factors? By how much exactly?  The principles are reasonably clear now but the measurable effect much less so.

 

 

Watch out! The insurers are after you! Ali v. Esure Services Ltd.

The insurance industry's worst kept secret is that there is a boom in fraudulent claims. It seems that most insurers now have fraud investigation departments who are increasingly active in hunting down dubious or downright fraudulent claims. And why not? Fraudulent claims are criminal and result to some extent or another in increased premiums for the average consumer. Fraudulent claimants cause genuine ones to run the gauntlet of intrusive questions and enquiries by insurers.
Esure has just gained the distinction of a Court of Appeal judgment arising from an alleged accident in the town where my office is, Huddersfield. The report is on a technical legal point which has little general interest but you can read it here:-
http://www.bailii.org/ew/cases/EWCA/Civ/2011/1582.html

The story behind it, though, is much more interesting. The Claimant was represented by solicitors in Bromley, Kent, despite the fact that the accident took place hundreds of miles away and despite Huddersfield being perfectly well supplied with PI lawyers. Nothing too novel about that though. A claim was issued in Medway County Court, later transferred to Huddersfield, and Esure defended it on the basis that they were not in fact the insurers of the named Defendant. So after the filing of the Defence in August 2009, the Claimant discontinued the action by a notice of discontinuance. There things lay until September, when Esure applied to revive the action. Now this seems on the face of it rather odd. After all, they had got out of the case, so why get it going again? The answer lies in what happened next.
Once the trial of the claim had taken place, with the Claimant, unsurprisingly, not taking any part and the claim being dismissed, Esure applied to transfer it to the High Court for their application to commit the Claimant to prison for contempt. They said that the Particulars of Claim were in reality a sham. They pointed to the provisions of CPR Part
32.14, which provides that:-
"(1) Proceedings for contempt of court may be brought against a person if he makes, or causes to be made, a false statement in a document verified by a statement of truth without an honest belief in its truth."
In other words, if you make a claim which may be fabricated, don't assume that it's pretty much risk free. You may secure a no win no fee deal with your lawyer but the statement of truth is not an empty formality. The Claimant is alleged to have authorised the Particulars of Claim, complete with statement of truth, it is said, and containing particulars which were untrue. Now as yet we have no idea whether this attempt to send him to prison will succeed. The Claimant has made it clear that he will defend it and denies authorising anything. What is quite sure, though, is that he is bound to experience many sleepless nights awaiting the trial and its outcome.
The gauntlet has been thrown down by the insurers – if you thought you were in for a free ride, think again!

Padden v. Bevan Ashford solicitors – the end of the free half hour?

If you feel so inclined, you can read what happened when a young solicitor saw a client who called into her office off the street, asking for urgent advice. It's reported here:- http://www.bailii.org/ew/cases/EWCA/Civ/2011/1616.html.

What it's all about

This is a sad tale of a lady who discovered that her husband was a fraudster, it turned out to the tune of £2m or so, when his solicitor turned up at the family home demanding that she sign over all her share of the family assets to prevent the children from seeing their father carted off to prison. A couple of days later, she received in the post documents which would achieve this. She tried to find a solicitor who would advise her on the documents, that same day, but the first two solicitors, one could say hard heartedly, turned her away on the ground that the transactions were simply to substantial. They weren't prepared to take the risk.

A third solicitor, recently qualified, agreed to see her, presumably given her evident distress. In a very short meeting, this solicitor advised the client in plain terms not to execute the documents. When the client said that she would have to, the solicitor commented, I assume rather drily, that she hoped that the husband was worth it. There was no charge by the solicitor for this meeting or any other work which they did later.

Now various other things happened afterwards and the documents were indeed executed and the assets lost. Despite this, the husband did indeed get imprisoned and the parties did divorce. The wife then sued the solicitors for failing properly to advise her. At first instance, the circuit judge took the bold (to adopt "Yes Minister" terminology) step of dismissing the claim after the Claimant had given evidence. His reasoning is not set out in the appeal judgment but is summarised as being that the Claimant had not established her claim. And so it ended up in the hands of the Court of Appeal.

The Court of Appeal's judgment on the solicitors

For various reasons, the appeal was allowed. Although it was not solely dependent on the events of the first meeting, it is the criticisms of the first meeting which give me cause for concern. It may sound like sour grapes, but I do find the pontifications of judges who have never tried to provide a high street legal advice service and earn a living at it a tad irritating. They decided that the clear advice not to proceed with executing the documents was insufficient. "A solicitor, properly advising her about the proposed transaction, should have told her of the importance of finding out all the relevant facts, before she executed the four documents," they thought.

And also, "if, as was the case on 28 March, the claimant indicated that she had insufficient time to be properly advised, the proper course for a solicitor would have been to explain to the claimant that she needed full advice about the course she was proposing to take, coupled with some investigation as to the facts. She should have been told in clear terms that a hurried short meeting was simply inappropriate, bearing in mind the importance, riskiness and probable pointlessness of the transaction she was about to enter into, the inadequacy of the information available at the moment, and her inevitably upset and emotional state, coupled with the pressure being put on her. The Judge seemed to think that it was for the claimant to ask for such a further meeting, but it seems to me that a solicitor who, at least according to the 1 April letter, had given the claimant 'independent legal advice' should have explored and tested her reasons for entering into the transaction, or at least advised her as to the importance of doing so."

The solicitor's dilemma

So if the client says she is in a hurry, you still have to insist on a further, lengthier meeting, which doubtless should be charged for, which the client may or may not agree to. The real complaint seems to have been that it was pretty obvious that there was a good chance that the husband would go to prison regardless of whether or not the assets got handed over. No allowance was made for the fact that this was a very short meeting, constrained by the client needing to get back home for her children. No allowance was made for the fact that the advice was free. Surely the test should not be whether the advice was comprehensive but whether it was sufficient? The solicitor rightly said that the client should not sign the documents. Maybe full reasoning and an exhaustive explanation for that advice was not given, so what? The advice was impeccable. The client may have rejected it, for bad reasons, but why should the client be excused responsibility for her bad decision? The fact is that the client got advice for nothing and, had she followed that advice, she would have been a lot better off financially. She chose not to. As an adult of full capacity, she has that right but why does the solicitor attract criticism for not providing a comprehensive service, presumably also for nothing?

The half hour free is not worth it

To be honest, this is the only rational conclusion. If a solicitor devotes a modest and proportionate part of his/her resources to providing free advice, it simply becomes a rod to beat him/her with. No reward is generated and his insurer runs the risk of an expensive hit. Why bother? Perhaps the only way this can continue is if each free interview starts with a disclaimer of liability, except that this would doubtless fall foul of something. At a time when legal aid is contracting still further, disincentives to provide pro bono advice are really not needed.

The worst possible outcome? NG v. SG

Some judges seem to specialise in judgments which are easy to read and especially useful to practitioners. Mostyn J is one of those. His latest publication (NG v. SG [2011] EWHC 3270 (Fam)) is all about a husband who allegedly failed to tell the truth about his assets. As a result, the District Judge who heard his application to reduce the maintenance he had to pay for his former wife and children, dealt with it in a way which led to an expensive appeal to the high court. The DJ had to decide whether the Husband had indeed suffered the radical reduction in his wealth which he claimed and Mostyn comments, "There can be no doubt that the course of the case was made difficult by a combination of bloody-mindedness and incompetence by H in the presentation of his financial affairs."  It seems, though, that his bloody-mindedness led to a poor judgment by the Court.

What the DJ did was order a capitalisation of maintenance at just short of £1m, which the Husband said amounted to all his remaining wealth. He found that "H was a serious and serial non-discloser" and drew adverse inferences about the true level of his wealth, as opposed to what he said that it now was. From having sold his business in 2002 for £6.7m, the Husband reckoned that he was now entirely out of money, having made an ill judged loan to a company and otherwise having spent the rest. Not bad going in just seven years! The DJ simply didn't believe him and ordered him to pay the balance of the maintenance in a single lump sum instead of over the rest of expected term.

It's an interesting tale in itself but for the family lawyer it contains a wealth of helpful material. It turns out to be a case study in how not to deal with a complicated case. Mostyn J explains just how the judge should have approached the exercise and why it went wrong. The sting in the tail is that the order was set aside and the case sent back to the lower court for the whole thing to be done again!

• A case which started life in February 2010 has to go back almost to its start and will have taken doubtless more than two years to conclude.
  
• The Husband stopped paying maintenance in February 2009, so his former wife has had to foot two years of legal bills without contribution from him.
  
• The Husband says that he has now run out of money and has had to conduct his own appeal hearing, albeit successfully.
  
• Both parties now face another contentious court hearing before they know where they stand.
  

So how has Mostyn helped lawyers? Well, by summarising the process that a court should follow. If you know how the court should set about its task, you should be able to structure your client's evidence and arguments. And how should a court do its job where one party says the other has hidden assets? Mostyn sets out an 8 stage system.

1. First it decides whether there are actually hidden assets, if necessary by drawing adverse inferences. If a party's life style simply cannot be financed from the declared means and there isn't a corresponding debt, the only sensible inference is that there's other money somewhere else, for example.
   
2. But any inferences must be reasonable. There has to be a reason to believe that there is other money. Simply not believing one party is not enough on its own.
   
3. If the court reasonably decides that there are hidden assets, the court must then do its best to quantify just how much is hidden away.
   
4. First of all, the court will look at any direct evidence, such as documents or things which the other party has been able to observe.
   
5. Next, the court will look at the non disclosing party's life style and business activities.
   
6. Vague rumours of someone having more money than he claims is just not enough.
   
7. It is possible to use a rule of thumb that someone who has failed to disclose has at least twice as much as the other party is asking for but this should not be the only measure of what he/she has.
   
8. Where the court has decided that one party has failed to disclose assets, it is better for the court to risk being unfair to that person than the other. In other words, the court will be generous to the innocent party at the risk of ordering the non discloser to pay more than is justified.
   

The unpleasant reality in this case is that if one party is foolishly extravagant in his lifestyle, as seems may well have been the case here, or takes bad investment decisions, it's both of the parties who will suffer as a result.

New divorce statistics

The latest divorce statistics were published this week. You can find a breakdown here:-
http://www.guardian.co.uk/news/datablog/2010/jan/28/divorce-rates-marriage-ons

Interestingly, the number of divorces has gone up for the first time in years. Marriages per head of population peaked in modern times in 1972, ironically just 12 months before the passing of the Matrimonial Causes Act, which has governed divorces for nearly 40 years. Since then, with a couple of minor peaks, marriage has been in continuous decline, especially when linked to the number of people eligible to marry. You can find the figures and a graph here:-
http://www.guardian.co.uk/news/datablog/2010/feb/11/marriage-rates-uk-data

The two graphs look very different. As marriages have steadily fallen per head of population, divorces have risen, held steady and then declined. Now there is the first sign of an increase again. If you look at the two graphs superimposed at the first link, you see a gradual convergence until the last 6 or 7 years. Now it looks as if the convergence may be resuming. Still, one year doesn't make a trend, so only time will tell if the number of divorces is actually going to meet and exceed the number of marriages.
For me, the most interesting and puzzling statistic is to be found here:-
http://www.whatdotheyknow.com/request/92177/response/229655/attach/html/3/5625%20Final%20Response.pdf.html

I've had a discussion on Linkedin about this oddity – how can it possibly be that of 114,000-119,000 divorces in the years 2009 and 2010, between 85,000 and 87,000 were carried out with public funding? This leaves just 29,000 to 32,000 to be privately funded and dealt with by private lawyers. As there are several thousand of us, this just doesn't stack up. I know that I don't deal with less than 10 clients during the course of a year! If anyone can explain this puzzle, I shall be fascinated to hear what is actually going on.

What it's all about including Brady & Anor v PKF (UK) LLP

This is a place for chatting about legal issues which catch my eye.  Mainly it's about family law as that's my specialism.  However, I deplore narrow mindedness, so there'll be excursions into all sorts of other byways.

In fact, that's what I'm kicking off with - something which at present at least has nothing to do with divorces - phone tapping!
 

Brady & Anor v PKF (UK) LLP & Ors

Astonishing as it may seem, despite all the fury of 2011 over the historic phone hacking of past years, it now appears that in some quarters it has still not gone away.

Sports fans will doubtless have kept abreast of the contentious issue of what is to happen to the Olympic Stadium once the games are over.  In the summer the government announced that West Ham United were to have use of it as they would share it with athletics.  Spurs were the losing bidders, as they would have ripped up the running track and would have excluded all except football.  But it didn’t stop there – Spurs threatened judicial review of the decision and the government decided to change the plan to avoid the legal expense and complication.

So far so good, but it became clear in the High Court on Friday that the accountants used by Spurs in this spat had been using information hacked from Karen Brady’s phone as part of the fight back.  It really is hard to credit that despite all the media coverage, arrests, enquiries and scandal that anyone in 2011 can seriously think that phone hacking is a legitimate tactic.

An employee of Spurs has even said in a witness statement in the court proceedings, “I did not attach any significance to Howard Hill's reference to receiving telephone records.”  Just where has he been for the last 12 months or so?  How can anybody at all think that obtaining someone else’s phone records is remotely legal?  Someone, and no one is admitting just who this was, sent information to the Sunday Times based on those records and as a result, the paper published a story on 3^rd July this year questioning how it was that West Ham got the nod.

The fact is that all is not fair in love and war.  The accountants, PKF, attempted to get the High Court to hold all the inevitable legal hearings in secret so that no one would hear what one of their partners had been up to.  The judge was having none of it though, and rightly so.  It seems that embarrassment, outright disgrace and even prison sentences are not yet having their effect. A major professional firm, on its own account of things, had received telephone records from an allegedly anonymous source and had not passed this information to the police or to the account holder, Karen Brady.  That’s not just reprehensible – it’s incredibly stupid!